General equilibrium analysis is more appropriate than partial equilibrium analysis when:
A)all product markets are in equilibrium.
B)change in the price of one commodity does not affect the demand for other commodities.
C)a change in condition affects many markets at the same time and in similar magnitudes.
D)a change in condition affects primarily one market.

Question

Quizplus · Accepted Answer

General equilibrium analysis is suitable when a change in condition affects many markets at the same time and in similar magnitudes. Partial equilibrium analysis, on the other hand, examines the impacts of a change on a single market or a few related markets, assuming that all other markets remain unchanged. In a general equilibrium analysis, all markets are interdependent, and changes in one market may affect other markets. Therefore, when a change in condition affects many markets at the same time and in similar magnitudes, a general equilibrium analysis provides a more accurate picture of the overall impact of the change. Choice A is incorrect since even if all product markets are in equilibrium, a change in one market can affect other markets. Choice B is incorrect as a change in the price of one commodity can affect the demand for other commodities. Choice D is incorrect since a change in condition in one market can affect other markets as well.

General Equilibrium Analysis Is More Appropriate Than Partial Equilibrium Analysis