ABSTRACT
Up to now we have been discussing partial equilibria. We have taken out a section of the total economy and made it the subject of a static, and in some cases also of a dynamic, analysis. We have studied what values the variables relating to this section of economic events must have, given certain data, if the economic plans of the individuals engaged in this sector are to be in agreement or harmony with one another. The influences of variables not belonging to this sector of the economy have been excluded from the relationships we have been studying. To do this we have made the assumption that variables outside our sector of the economy do not change their value in the course of the analysis of these partial relationships. This is the well-known “ceterisparibus” clause, which we had to introduce in order to be able to study the economic process undisturbed by influences external to the partial sector we are examining. The surrounding world is regarded as fixed or frozen over the period for which it is being studied. A partial analysis cannot be pursued by any other methods. Just as we have to study the course of the economic process as a whole on the basis of a certain set of data for the whole economy, similarly we have here to treat as given and unchanging everything outside these partial relationships.( 1 ) The results of partial analysis, therefore, are only valid on the assumption that the outside variables have given values. If the exogenous variables have other values, then the conclusions of partial analysis, and in particular the equilibrium values of the variables in the partial relationships, are altered, just as the economic process as a whole is different if the data for the total economy are changed. This shows us the limits of partial analysis. Because of its dependence on the values of variables outside it, the existence of a partial equilibrium does not in any way guarantee a total equilibrium for the whole economy, where, given certain data for the economy as a whole, the variables have values such that no individual has reason to alter his dispositions. Let us assume, for example, that for the description and analysis of the economic process as a whole four variables x, y, z, and u are necessary. Given certain data for the total economy, the following four functional relationships may exist between these four variables : https://www.w3.org/1998/Math/MathML"> f ( x , y , z , u ) = 0 g ( x , y , z , u ) = 0 h ( x , y , z , u ) = 0 j ( x , y , z , u ) = 0. https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9781315016443/8af9975b-172a-4dc0-9a92-f13e7dc9f7fb/content/math_335_B.tif" xmlns:xlink="https://www.w3.org/1999/xlink"/>
