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To see how interrelated all markets really are, consider the recent decisions by OPEC to decrease the supply of crude oil. The repercussions of this are felt in the United States and all over the world, right on down to you and I, the individual consumer buying gasoline or home heating oil. But in addition, all of the products we purchase that are shipped by air or by truck are likely to go up in price as the shipping costs will increase with the higher fuel prices. Markets all over the world and within the United States are connected as if they were all part of a large web. A tap on one side of the web can be felt clear on the other side. This is the point illustrated by the circular flow model. Up to this point, when we referred to “equilibrium” it meant partial equilibrium. It is "partial" because the focus was on individual markets, and not necessarily on the other markets connected to it. Take, for example, the shoe market. The focus was on looking at how the shoe market changes, without thinking about the labor market for shoemakers, or the sneaker and sandal markets, and so on. When we think about the whole picture, the entire set of interconnected markets, this equilibrium is called the general equilibrium. When there is a change in one market, the effect "ripples" across the economy into many, if not all, of the other markets. Once things settle down and all of the supply and demand curves stop shifting as a result of the initial change, then there is a new general equilibrium. It is important to note and understand that a shift in supply (due to a change in cost, technology, or many other factors) or a shift in demand (due to a change in income, tastes and preferences, or many other factors) will more than likely affect other markets in addition to the one in which it occurs. It may be that these are the markets for substitutes or complements. It may be that these other markets use the same inputs. It might be that these markets demand from the same labor pool. Let us consider two such examples.
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