I. Start in Equilibrium:
a. A state of balance, a benchmark or reference point.
b. Given Other Things Equal on the outside, exogenous (OTE) or Ceteris Paribus (CP), find where all forces balance, that is the resting spot for inside or endogenous variables--no change!
II. Not Ceteris Paribus:
a. Shock system, change an exogenous variable, causes a shift (earthquake).
b. Not Other Things Equal OTE [or Not Ceteris Paribus CP].
III. The Market:
a. At the prevailing price, is there a surplus or shortage at the current market price?
IV. Adjust the price:
a. Surpluses/shortages cause a change in price and activate rationing & directing effects. Essential: adjust all the endogenous variables to new state of balance.
V. IDNXMTS:
a. Identify the new X marks the spot (i.e. new equilibrium is established, where the new supply and demand curves come together).
VI. Draw Conclusions:
a. Compare new levels of the endogenous variables to original values, i.e. the new equilibrium to the old equilibrium.