🔎 E-1000 Comparative Statics

Comparative Statics

Three questions:

1. Which curve shifts?
2. Which way does it shift?
3. Draw the diagram: what happens to equilibrium P and Q after the shift?

If demand curve shifts, then equilibrium P and Q move in the same direction.

If supply curve shifts, then equilibrium P and Q move in opposite directions.

When two curves shift at once

What happens if two curves move simultaneously?

Suppose, simultaneously, the government increases interdiction efforts and education efforts to decrease drug use. What happens to P and Q?

• Effect of Interdiction of drug dealers: Supply shifts left, so P↑ and Q↓
• Education of drug users: Demand shifts left, so P↓ and Q↓ .
• Let’s consider both interdiction and education:
  • Interdiction says P↑ + Education P↓ = Net effect on P is ambiguous
  • Interdiction says Q↓ + Education Q↓ = Net effect on Q is ↓