The Conflict Between General Equilibrium and the Marshallian Cross
AbstractThere 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1219.
Length: 36 pages
Date of creation: Jul 2012
Date of revision:
Other versions of this item:
- Zaman, Asad & Saglam, Ismail, 2010. "The conflict between general equilibrium and the Marshallian cross," MPRA Paper 33256, University Library of Munich, Germany.
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- A. Cohen & G. Harcourt., 2009. "Whatever Happened to the Cambridge Capital Theory Controversies?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
- Steedman, Ian, 1988. "Sraffian Interdependence and Partial Equilibrium Analysis," Cambridge Journal of Economics, Oxford University Press, vol. 12(1), pages 85-95, March.
- Frederic Lee & Steve Keen, 2004. "The Incoherent Emperor: A Heterodox Critique of Neoclassical Microeconomic Theory," Review of Social Economy, Taylor & Francis Journals, vol. 62(2), pages 169-199.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
- Kane, John, 1997. "Myth and measurement: The new economics of the minimum wage : David Card and Alan B. Krueger, New Jersey: Princeton University Press, 1995, x + 422," International Review of Economics & Finance, Elsevier, vol. 6(2), pages 219-222.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sumru Oz).
If references are entirely missing, you can add them using this form.