Question

a) Which is preferable : general or partial equilibrium analysis? why?

b) Distinguish between Walras general equilibrium approach and Marshall partial equilibrium approach. ( 2 page)

Answer 1

A) 1. General Equilibrium :- It analyzes the economy as whole rather than single markets. It applies when supply and demand are equal. It tries to explain the behavior of supply, demand and prices.

2. Partial Equilibrium :- The partial equilibrium method explains supply and demand in one or more markets so that price stabilize at their balance level.

Partial Equilibrium is a condition of economic equilibrium which take into reflection only a part of the market.

Partial Equilibrium is preferable because it analyse the independent markets.

B) Walras General Equilibrium Approach :-

Walras enlarges the general equilibrium theory to explain the functioning of the macroeconomy as a whole. This approach tried to show how and why all free markets tend towards equilibrium in long run.

Marshall Partial Equilibrium Approach :- The Marshall's partial equilibrium approach explors to explain the price determination of a single commodity through the intersection of demand and supply curves, with prices of other goods, resource prices etc, remaining the same.

Differences :-

1. Partial Equilibrium was developed by Alfred Marshall whereas General Equilibrium was developed by Leon Walras.

2. Partial Equilibrium is related to single variable whereas General Equilibrium is related to whole country.

3. Partial Equilibrium analysis focuses on the market in which tax is imposed whereas General Equilibrium analysis many markets.

4. Partial Equilibrium is a short-run approach whereas General Equilibrium is a long-run approach.

5. Partial Equilibrium studies only the part of the economy whereas General Equilibrium studies the whole economy.