As defined by George Stigler, "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis."
The Supply and demand model is a partial equilibrium model where the clearance on the market of some specific goods is obtained independently from prices and quantities in other markets. In other words, the prices of all substitutes and complements, as well as income levels of consumers are constant. This makes analysis much simpler than in a general equilibrium model which includes an entire economy.
Here the dynamic process is that prices adjust until supply equals demand. It is a powerfully simple technique that allows one to study equilibrium, efficiency and comparative statics. The stringency of the simplifying assumptions inherent in this approach make the model considerably more tractable, but may produce results which, while seemingly precise, do not effectively model real world economic phenomena.
Partial equilibrium analysis examines the effects of policy action in creating equilibrium only in that particular sector or market which is directly affected, ignoring its effect in any other market or industry assuming that they being small will have little impact if any.
Hence this analysis is considered to be useful in constricted markets.
Léon Walras first formalized the idea of a one-period economic equilibrium of the general economic system, but it was French economist Antoine Augustin Cournot and English political economist Alfred Marshall who developed tractable models to analyze an economic system.
Other articles related to "partial equilibrium, equilibrium":
... critique focused on the inconsistency (except in implausible circumstances) of partial equilibrium analysis and the rationale for the upward slope of ... Sraffa (1926) establishes is how nearly empty are all of Marshall's partial equilibrium boxes ... To a logical purist of Wittgenstein and Sraffa class, the Marshallian partial equilibrium box of constant cost is even more empty than the box of increasing cost." ...
... Partial equilibrium as the name suggests takes into consideration only a part of the market, ceteris paribus to attain equilibrium ... Jain proposes (attributed to George Stigler) "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other ... This makes analysis much simpler than in a general equilibrium model which includes an entire economy ...
Famous quotes containing the words equilibrium and/or partial:
“There is a relation between the hours of our life and the centuries of time. As the air I breathe is drawn from the great repositories of nature, as the light on my book is yielded by a star a hundred millions of miles distant, as the poise of my body depends on the equilibrium of centrifugal and centripetal forces, so the hours should be instructed by the ages and the ages explained by the hours.”
—Ralph Waldo Emerson (18031882)
“It is characteristic of the epistemological tradition to present us with partial scenarios and then to demand whole or categorical answers as it were.”
—Avrum Stroll (b. 1921)