Partial Equilibrium
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Partial equilibrium models are used to evaluate the impact of trade policy changes on specific markets. They estimate supply and demand curves for a market while holding other markets constant. For example, a partial equilibrium model could show that imposing an import tariff on a product would increase its domestic price, boost domestic supply as local producers become more competitive, reduce demand due to the higher price, and decrease imports. The advantages of partial equilibrium models are that they provide a simple and quick evaluation of trade policies while requiring minimal data.
Partial Equilibrium
- 1. PARTIAL EQUILIBRIUM EVALUATION OF TRADE POLICIESPURPOSE OF PARTIAL EQUILIBRIUM MODELING Evaluation of the impact of modifications in tradepolicies for a particularmarketEstimation of the demand and supplyfunctions for a market – whileassuming no change in othermarketsCopyright © ECOPA 20091
- 2. EXAMPLE OF A PARTIAL EQUILIBRIUM MODEL Copyright © ECOPA 20092PARTIAL EQUILIBRIUM EVALUATION OF TRADE POLICIESPw : world priceQw : world quantityt : tariff
- 3. 3PARTIAL EQUILIBRIUM EVALUATION OF TRADE POLICIESEXAMPLE OF USING A PARTIAL EQUILIBRIUM MODELImport tariff on a non-specificproduct by a country : PwwillincreasePw (1+t)Increase in domesticsupply(domesticproducers are more competitivebecausethey are not subject to the tariff)Reduction in demand(due to higherprice)Decrease in quantity of importsCopyright © ECOPA 2009
- 4. PARTIAL EQUILIBRIUM EVALUATION OF TRADE POLICIESADVANTAGES OF A PARTIAL EQUILIBRIUM MODEL Evaluates, in a simple, quickand partialmanner, the consequences of tradepoliciesRequiresminimal dataData canbefurtherdisaggregatedthan in CGE modelsCopyright © ECOPA 20094