What Is a Partial Equilibrium?

Partial equilibrium theory, also known as Partial Equilibrium Analysis: Under the assumption that other market conditions remain unchanged, examine the relationship or equilibrium between supply and demand and prices in a single market or part of the market in isolation Without regard to their interconnectedness and impact.

Partial equilibrium

Right!

Founded by Marshall (1920)

Partial equilibrium is to examine the relationship or equilibrium between supply and demand and prices in a single market or part of the market in isolation, assuming that other market conditions remain unchanged, without considering their interrelationships and effects. The representative is Marshall.

General equilibrium refers to the relationship or equilibrium between the prices and supply and demand of various commodities in all markets on the condition that supply and demand are acknowledged to be interconnected and influential with the prices and supply and demand of various commodities in the market. The representative of general equilibrium theory is Walras.

The Walrasian general equilibrium model is represented by four equations: the commodity demand equation, the factor demand equation, the firm supply equation, and the factor supply equation. Since the model assumes that factor income is equal to the product sales value, one of these four equation classes must not be independent.

By making any commodity a monetary commodity and defining the prices of other commodities and factors with this monetary commodity, the number of unknowns of the model can be consistent with the number of independent equations, thereby satisfying the necessary conditions of the system of equations, that is, the model has a solution.

The goal of general equilibrium is optimal economic efficiency, that is, optimal economic welfare.