Managerial Economicsintermediate
Arrange the standard steps of comparative statics analysis used to evaluate a market shock from first to last.
Answer
Identify the initial equilibrium price and quantity, Determine which curve shifts and in which direction, Find the new equilibrium intersection point, Compare the new equilibrium to the initial equilibrium
Explanation
### The order
1. **Identify the initial equilibrium**: This provides the starting point for comparison.
2. **Shift the demand curve to represent increased demand**: A demand increase changes demand at each price.
3. **Hold the supply curve unchanged**: The stated comparative statics exercise changes demand alone.
4. **Compare the new intersection with the initial equilibrium**: The new equilibrium has a higher price and quantity.
### Remember
Comparative statics compares the starting equilibrium with the intersection after the specified shift.
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