Static Analysis

Core idea
Static analysis studies the determination of one equilibrium under unchanging conditions, without asking how we get there or what happens later.

Explanation
In static analysis we assume that:

• Population, technology, capital and business organisation remain the same.
• People’s tastes and wants do not change.
• There are no shocks in the economy.

Under these fixed conditions, we study how demand and supply interact to give an equilibrium price and quantity in a market.

• "The stationary state is an economy in which the tastes, resources and technology do not change through time." - Prof. Stigler
• "Economic statics are those parts of economic theory where we do not trouble about dating. Thus, 'statics' studies stationary situations which are devoid of any change and which do not require any relation to the past or future." - Hicks

Interpretation

• At price OP, the quantity that buyers want to buy equals the quantity sellers want to sell (OM).
• There is no tendency for price to rise or fall; the market is in equilibrium.
• Static analysis focuses only on this single equilibrium point E and treats the underlying conditions as fixed.

Core idea

Comparative statics compares equilibrium before and after a change in some independent variable, such as income, tastes, technology, tax, etc., while ignoring the time path between them.

Explanation
Steps in a typical comparative statics exercise:

1. Start with an initial equilibrium where demand equals supply.
2. Change one exogenous variable (for example, an increase in income that affects demand).
3. This causes a shift in demand or supply curve.
4. Find the new equilibrium where the new curve intersects the unchanged curve.
5. Compare the old and new equilibrium prices and quantities.

The method tells us how equilibrium values change due to shocks or policy changes (e.g., tax, subsidy, change in preferences).

Interpretation

• Because demand increased (shift from DD to D₁D₁), the new equilibrium has:
  Higher price: OP₁ > OP.
  Higher quantity: OM₁ > OM.
• Comparative statics only compares the two end points (E and E₁).
• It does not show how price gradually moved from OP to OP₁ or how long the adjustment took.

• In a city, movie tickets are initially in equilibrium at ₹200 and 10,000 tickets per weekend.
• A new student income scheme means students have more money; demand for movies increases, so the demand curve shifts right.
• New equilibrium becomes ₹220 and 11,500 tickets.
• Describing only one situation (₹200, 10,000) = static analysis.
• Comparing the old equilibrium (₹200, 10,000) with the new one (₹220, 11,500) = comparative statics – equilibrium price and quantity both rise when demand increases and supply is unchanged.​

• Static analysis: one equilibrium, no change in conditions.
• Comparative statics: two equilibria, before and after a change in an outside factor.​
• Change in demand or supply shifts the curve, giving a new equilibrium price and quantity.​
• Both methods ignore the adjustment path; they only compare equilibrium “snapshots.”