Sunday, May 29, 2011

Distinction between Partial & General Equilibrium

Equilibrium means a position of rest or a state of balance or a state of no change. The two types of equilibrium are -Partial equilibrium &
- General equilibrium
- Partial equilibrium (PE)was popularised by Alfred Marshall while general equilibrium (GE) analysis was popularised by Leon Walras.
- PE is related to a single variable while GE is related to numerous variables or the economy as a whole.
- PE is based on two assumptions i.e., - Ceteris Paribus & - Changes in one sector do not affect others. GE is based on the fact that the various sectors are mutually interdependent. Change in one sector influences the other sectors.
- PE explains price determination of a single good when other things remain constant.
Dx = f (Px), Sx = f(Px) & Dx = Sx at equilibrium. GE explains mutual & simultaneous determination of prices of all goods & factors. All product & factor markets are simultaneously in equilibrium.
- According to Stigler, "A partial equilibrium is one which is based on only a restricted range of data; a standard example is price of a single prodcut where the price of all other prodcuts is being held fixed during the analysis". On the other hand "the theory of GE is the theory of inter relationships among all parts of the economy".

External Vs Internal debt

Public debt refers to the borrowing by a country either from within the country or from abroad, from pvt. individuals or banking institutions etc. It may borrow from IMF or IBRD. Govt. is forced to borrow when its expenditure exceeds its revenue. Public debet may be classified into external debt & internal debt.
- Internal debt is the debt raised by the govt. from within the country by the sale of bonds and securities to banks, financial institutions, etc.
External debt is the debt taken from foreigners, foreign govt.s or foreign financial institutions.
- When internal debt is raised money is transferred from lenders to the govt. The govt. uses it for making payments to its servants, etc. The debt is considered beneficial if the amount borrowed amount is used for the benefit of the poor & betterment of the society.
When the lender country buys goods from the debtor country with the debt amount repaid, it causes real burden. This reduces the economic welfare in the debtor country.
Thus external debt is of greater burden than the internal debt.