Answer to Question #206891 in Economics for Buli

Question

How do you explain net loss in the partial equilibrum framework?

Answer 1

Partial equilibrium theory is based on the assumption of perfect competition, which is characterized by a large number of producers and consumers of a commodity. Partial equilibrium theory emphasizes that the society is better off with trade than with autarky (no trade), if a government restricts the trade and net loss occurs.