2.4 Shocking the Equilibrium: Comparative Statics
If the variables we hold constant in the demand and supply functions do not change, an equilibrium would persist indefinitely because none of the participants in the market would apply pressure to change the price. However, the equilibrium changes if a shock occurs so that one of the variables we were holding constant changes, causing a shift in either the demand curve or the supply curve.
Comparative statics is the method economists use to analyze how variables controlled by consumers and firms—here, price and quantity—react to a change in environmental variables (also called exogenous variables) that they do not control. Such environmental variables include the prices of substitutes, the prices ...
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