Partial EQUILIBRIUM ANALYSIS

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Partial EQUILIBRIUM ANALYSIS

Partial equilibrium analysis is the analysis of an equilibrium position for a sector of the economy or for one or several partial groups of the economic units corresponding to a particular set (If data. This analysis essentially entails a process . whereby. it excludes certain variable and relationship from the totality and studies only a few selected variables at a time, In other words. this method considers the changes in one  two variables keeping all others constant.

The equilibrium of a single consumer. or producer. single firm or single industry arc examples of partial equilibrium theory of value is a case of partial equilibrium analysis. Referring to this aspect of Marshall economics. Hicks in his book Capital a  observes.

It is clear from these statements that if the . Marshall method (i.e .. partial equilibrium analysis) is to be effective. even  own terms. when applied to J hypothetical and idealized market. it is necessary that market should be small enough so that its inter-dependence with the rest of the hypothetical economy could be neglected without much loss of accuracy. This procedure involves the reduction of an dimensional model to a two-dimensional cross section.

It is thus it case of instruct  simplification that works variables-we can let the others go  matter for us or which are assumed not to The importance of the phrase ‘other tiling In equal or what is also called thus ceteris pari becomes obvious. For instance. in a complete demand-supply  we know that the quantity) demanded depends on a host of variables the price of the product concerned, income and its distribution. prices of substitutes. selling costs. taste. etc. Similarly. the quantity supplied depends upon a large number of factors or variables. The partial equilibrium analysis works by picking up the most essential variables influencing the quantity demanded or supplied’ and assumes all other variables to lie constant. It is on such assumptions that the demand and supply curves are drawn to determine the equilibrium price.

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Partial EQUILIBRIUM ANALYSIS