Answer to Question #292792 in Economics for Hafsa

Question

Why does the use of demand and supply curves of the traded commodity refer to partial equilibrium analysis? In what way is partial equilibrium analysis of trade related to general equilibrium analysis? 

Answer 1

Partial equilibrium theory is based on the assumption of perfect competition, which is characterized by a large number of producers and consumers of a commodity. Partial equilibrium theory emphasizes that the society is better off with trade than with autarky (no trade), if a government restricts the trade. The equilibrium occurs in point where demand and supply curves intersect.