Comparative Statics and Market Changes

Comparative statics compares equilibrium before and after an external change. Identify the affected curve, determine its direction, draw the new intersection, and state separately what happens to equilibrium price and quantity.

Reliable results from one-curve shifts

Higher demand raises both price and quantity; lower demand reduces both. Higher supply lowers price and raises quantity; lower supply raises price and reduces quantity.

Four benchmark cases

Hot weather that raises ice-cream demand moves the intersection up and right. Refrigeration technology that lowers cost shifts supply right, lowering price and raising sales. Same-direction price and quantity changes often suggest a demand shock; opposite directions suggest supply, provided other shifts are absent.

With simultaneous shifts, state what is identified. Demand rising while supply falls certainly raises price, but quantity is ambiguous because the forces oppose. Honest uncertainty is a result, not a failure. Comparative statics compares endpoints and does not claim to show adjustment speed or path.

When both curves shift, one result is often ambiguous. If demand and supply both increase, quantity rises but price depends on relative shift sizes. Do not force a unique answer from insufficient information. The graph compares equilibria; it does not describe adjustment speed or path.