Answer to Question #134523 in Microeconomics for Sameer

Question

Explain micro comparative static point.

Answer 1

$$Solution.$$

Usually there is a change in the condition of demand and supply. This change brings a shift in the equilibrium condition. This type of change in equilibrium at different points of time as it compares with another is referred to as the micro comparative static. The equilibrium point where the demand and supply meet during this changes is referred to as the micro comparative static point.

The figure below can briefly explain this conditions.

This diagram shows how equilibrium prices are determined by the interaction between demand and supply forces. $E$ is the point at which good demand and supply is equal and the $OP$ prices are established. Now the demand for the commodity increases for some reason or another.

Therefore the curve of $DD$ demand changes to $D1D1$ . The $D1D1$ curve of new demand intersects the SS supply curve at $E1$ . In comparative static economics, the old and the new positions of equilibrium are comparable. In this respect, equilibrium price is determined at level $OP1$ .

The figure above shows $E$ and $E1$ balance points. But it does not show how the new equilibrium point, i.e., has been reached. This means that the path of change is not shown in comparative static economics. Only two still images of the competing market can be compared here.