Smallness of a commodity and partial equilibrium analysis

Takashi Hayashi

Journal of Economic Theory, 2013, vol. 148, issue 1, 279-305

Abstract: Partial equilibrium analysis has a conceptual dilemma that its object should be negligibly small in order to be free from income effect but then the consumer does not care for it and the notion of willingness to pay for it does not make sense. In the setting of a continuum of commodities, we propose a limiting procedure which transforms the general many-commodity framework into a partial single-commodity framework. In the limit, willingness to pay for a commodity is established as a density notion and it is shown to be free from income effect. This pins down an exact relationship between general equilibrium analysis and partial equilibrium analysis.

Keywords: Partial equilibrium analysis; No income effect; Consumer surplus; General equilibrium (search for similar items in EconPapers)
JEL-codes: D11 D50 D60 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:1:p:279-305

DOI: 10.1016/j.jet.2012.12.017

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