What is meant by comparative statics? Is it different from the concept of marginal analysis? Explain with the help of suitable examples
What will be an ideal response?
Comparative statics is the comparison of economic outcomes before and after some economic variable is changed. For example, an individual may choose Apartment A, which is far from his place of work, over Apartment B, which is closer. However, if his opportunity cost of time increases, the total cost of renting Apartment A also increases, and his optimal choice might change.
Marginal analysis, on the other hand, is a completely different concept. It is a cost-benefit calculation that studies the differences between feasible alternatives. For example, if a firm that has 10 employees wants to hire an eleventh employee, it will not consider the net benefit of the 10 employees who are already employed. Instead, the firm will focus only on estimating the net benefit of hiring the eleventh employee to arrive at a decision.
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In monopolistically competitive markets, positive economic profits
a. suggest that some existing firms will exit the market. b. suggest that new firms will enter the market. c. are sustained through government-imposed barriers to entry. d. are never possible.
Which of the following policies has succeeded in reducing fishery catch sizes without creating an "arms race" among fishers?
A. Limiting the length of the catch season. B. Limiting the number of boats allowed in a given area. C. Limiting catch size (TAC). D. Issuing individual transferable quotas (ITQs).