Question

Distinguish between Walras’s general equilibrium approach and Marshall’s partial equilibrium approach. ( 2 page answer)

Answer 1

Partial Equilibrium analysis, the price of the commodities determined through keeping the price of other commodities remain constant. Here also assume that the commodities are dependent. This partial equilibrium used to explain the pricing under perfect competition. For simplicity, the prices of other commodities, taste and preference and income of the consumers are constant. Under this circumstances the supply curve is derived through assuming prices of other commodities and prices of inputs are same. The partial equilibrium determine thorough the intersection of demand and supply curve. This will determine the price and output equilibrium of a single commodity. This theory states that changes in a single sector will nog affect the rest of industry. All the partial equilibrium analysis are on the basis of ceteris paribus. So the partial equilibrium only affect the single sector of the economy.  

Under general equilibrium analysis the prices of one good js determined by the price and quantity of other related goods. This determine the simultaneous determination of the prices of all goods and factors. Here the price and quantity having significance in the determination of the prices of particular commodity. There is a mutuality and cooperation between firms in determining the prices. The general equilibrium explain the inter relationship and inter dependence of all the sectors, which tried to adjust there price and quantity. There is a process of adjustment worked behind the price determining mechanism. Here the quantity demanded function is the summation of all quantity demands in the market. The quantity supplied is the function of the prices of all inputs. So general equilibrium analysis is better to find the welfare in the economy.