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unit-3-methods-of-economic-analysis

Unit-3 Methods of Economic Analysis

In this unit we go through the discourse on the distinction between partial and general equilibrium analysis.

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As demand for automobiles goes up, the demand for steel goes up, which in turn increases the demand for aluminium and so on. Is this an example of partial equilibrium approach or general equilibrium approach ?

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Learning Pundits Content Team

Written on Jun 26, 2019 6:08:55 PM

General equilibrium approach is needed. When market (economic) inter dependencies or interrelationships are not taken into account, or do not exist, partial equilibrium analysis is the correct approach. However, when such interrelationships and inter dependencies exist and are important, and the ignorance of which will have serious consequences or will prove costly in terms of the quality of economic predictions, a general equilibrium analysis must be used. It must be used whenever an event has all pervading effect.