ABSTRACT
In the Looney Tunes cartoon the Road Runner, Wile E. Coyote is never quite able to catch Road Runner. Something always happens that prevents his capture. Like Wile E. Coyote, rational households in their effort to find local bliss by maximizing utility for a given level of income and a fixed set of prices are never quite able to make it. Everchanging prices and income require households to continuously adjust their commodity bundle. We can study these changes by comparing one utility-maximizing equilibrium with another. This comparison, called comparative statics analysis, investigates a change in some parameters, holding everything else constant, including preferences (ceteris paribus). With preferences constant, individual indifference curves remain fixed, and comparative statics investigates the effects of shifting the budget constraint by changing its parameters (income and prices). Comparative statics is not concerned with dynamics-the movement from one equilibrium position to the next. Instead, comparative statics analysis investigates the sensitivity of a solution to changes in the parameters. The question of why a parameter changes-for example, why a price increases-will be addressed in subsequent chapters. In terms of comparative statics, the statement “life is hard” does not providemuch information. The relative relationship of life now compared with life at another point in time or place would be more informative.
