Theoretical Development of the Partial Equilibrium Model

Abstract

The partial equilibrium is a type of economic equilibrium model commonly used to analyze cities and urban areas from an urban economics point of view. In a partial equilibrium model, clearance on the market of certain specific goods is obtained independently from prices and quantities demanded and supplied in other markets. In other words, the prices of all substitutes and complements, as well as consumers’ income levels, are constant. This constancy enables a dynamic process that allows prices to be adjusted until supply equals demand. This powerfully simple technique allows one to study equilibrium, efficiency, and comparative statics. The stringency of the simplifying assumptions inherent in this approach makes the model produce results that do not effectively reflect real-world economic phenomena, although seemingly precise.