Saglam, Ismail and Zaman, Asad (2010): The conflict between general equilibrium and the Marshallian cross.
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There is a conflict in the mechanism for price determination used in a Marshallian partial equilibrium supply and demand framework and the Walrasian general equilibrium framework. It is generally thought that partial equilibrium is a simplified approximation to the complexities of the general model. The goal of this paper is to show that there is a strong conflict between the two models - intuitions and heuristics suggested by partial equilibrium are contradicted by extensions to the general equilibrium case. We review the literature on the conflict and also provide a very simple model where partial equilibrium analysis fails completely. Several intuitively plausible remedies fail to restore partial equilibrium results. We show that Marshallian analysis can be made to work only under rather stringent conditions requiring joint production with low fixed costs and decreasing returns resulting in identical production proportions by all producers.
|Item Type:||MPRA Paper|
|Original Title:||The conflict between general equilibrium and the Marshallian cross|
|English Title:||The Conflict Between General Equilibrium and the Marshallian Cross|
|Keywords:||Partial equilibrium; General equilibrium; Perfect competition|
|Subjects:||D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles|
|Depositing User:||Ismail Saglam|
|Date Deposited:||26. Jul 2012 13:32|
|Last Modified:||21. Feb 2013 01:15|
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The conflict between general equilibrium and the Marshallian cross. (deposited 09. Sep 2011 11:22)
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