Chapter 5.1 - Partial vs General Equilibrium - YouTube

hi this is the first video of chapter 5 general  equilibrium and economic efficiency in this  

video we are going to talk about partial  equilibrium versus general equilibrium  

and this chapter is going to close the course so  until now we have studied individual markets in  

isolation but markets are often interdependent  this means that conditions in one market can  

affect the prices and the outputs in other  80 because one good can be an input to the  

production of another good or because two  goods are subsidies or they can be compliments

then so far our discussion of market behavior have  been largely based on partial equilibrium analysis  

when determining the clipping prices  and the quantities in the market  

we were presuming that the activity in that market  had little or no effect on the other markets  

however a partial eclipsing analysis of this sort  is sufficient to understand market behavior but  

we might we must also pay attention to the market  interrelationships unlike the partial equilibrium  

analysis general equilibrium analysis is going  to determine the prices and the quantities in  

all markets simultaneously so we if we talk about  partial equilibrium analysis we can talk about  

only the equilibrium in the market of  clothes or only the clearing that we find  

in the market of food or then we can talk  about the equilibrium in the market of oil  

independently from the living in the market of gas  however we know that these two markets for example  

can be interrelated they can  be interdependent so when the  

price of oil has a change it changes increase  or decrease this is going to have an effect  

in the price of gas and in the quantity that  we exchange in this market in equilibrium

then general equilibrium analysis is going  to determine as i have said the price and  

the quantity in all markets at the same time  simultaneously and it explicitly takes feedback  

effects into account but what are feedback effects  if the effect is a price or quantity adjustment  

in one market that is caused by price and quantity  as adjustments in related markets for example  

let's suppose that for example the spanish  government taxes all imports so the government  

is going to impose a tax on oil imports this  is going to immediately shift the supply curve  

for oil to the left because the foreign oil  is more expensive and it's going to raise  

it's going to increase the price of oil but  the effect of this tax is not going to end  

there the higher price of oil is going to  increase the demand for and then the price of a  

natural gas for example and the higher the natural  gas price will in turn cause oil demand to rise  

shift to the right and increase the oil price  even more so the oil and the natural gas markets  

will continue to interact until eventually an  equilibrium will be reached in will in which  

the quantity demanded and the quantity supplied  were equated to both markets so in practice a  

complete general equipment analysis that is going  to evaluate the effects of a change in one market  

on all the other markets is not feasible instead  we confine ourselves to two or three markets that  

are closely related for example when we look  at the tax on oil we might also look at markets  

for natural gas or for coal or for electricity  for example that are substitutes of oil sometimes

then to reach the general equilibrium prices  and quantities we will see that we must find two  

prices that equate quantity demanded and  quantity supplied in all related markets  

if we have two markets to simplify we will  need to find the solution to four equations  

so we will simplify again and we will just see  the relationship between two different markets  

and that's all for the moment  see you in the next video