Comparative Statics: A Review

It is now time to review the findings from our comparative static experiments.  The results appear in the two tables below.  The first table summarizes the situation where there is only one shock which affects only one curve.   In this situation you are able to predict what will happen to the price and quantity.  If there is an increase in demand, this can be expected to push prices and output higher.  Similarly, if there is a decrease in supply, this will put downward pressure on output and upward pressure on price.

Shifts in Supply or Demand

But what about the situation where there is a simultaneous shift in both curves?  In these situations you will not be able to predict both the quantity and price effect.  For example, if we thought both Supply and Demand increased, then the increase in demand would put upward pressure on price, while the increase in supply would put downward pressure on price. In this situation we would not be able to specify the direction of the price change until we knew something about the magnitudes of the shifts. We can, however, forecast an increase in quantity since both the supply and demand increases tend to increase output.  In the table below you will see the  ? in these situations where we  can not tell the direction of change in price or quantity unless we know more about the relative size of the shifts.

Shifts in both Supply and Demand