Applicability

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Applicability

There arc two types of problems that the partial equilibrium analysis can deal with. In the first category rail those problems which pertain specific facets of economic behavior or certain individual.  or industry. Such a case may indeed be the market 1’01’ a single product and that market alone is  into account, while others to be constant. In the second category arc included only those economic problem  where the analysis is to he conducted for the first Miler consequences of the economic phenomena alone and it ignores the secondary effects.

With the application of partial equilibrium analysis. consumer’s equilibrium is indicated when he is gelling maximum aggregate satisfaction from 11 given expenditure and in a given set or conditions relating to price and supply of the commodity. A producer is in equilibrium when  to maximize his aggregate net profit in the  conditions in which he-is working. A firm to be in long-run equilibrium when it has attained the optimum size which is ideal from the point of vie of profit and utilization of resources at its  There is no tendency for it either to expand contract. Equilibrium of an industry show is no incentive for new firms to  existing firms to leave it.

Marginal Fran in the industry is making only normal profit, neither more nor less. In all these cases, those who have incentive 10 change it have no opportunity and those who have the opportunity have nil incentive.

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Applicability