An economic model predicts that an increase in the price of a product will lead to a decrease in the quantity demanded, assuming all other factors are held constant. A local cafe raises the price of its lattes. Contrary to the model's prediction, the cafe sells more lattes than before. Which of the following scenarios, if true, best explains this outcome by considering a factor previously held constant?

Analyzing a Labor Market Model

Reconciling a Model with Real-World Data

Evaluating a Housing Market Model

If an economic model's prediction, which was based on holding certain factors constant, is contradicted by real-world observations, this necessarily means the model's underlying theory is flawed and should be abandoned.

An economic model's prediction often differs from real-world outcomes because a factor assumed to be constant has changed. For each scenario below describing an unexpected outcome, match it with the most plausible change in an external factor that would explain the discrepancy.

Explaining Unexpected Minimum Wage Effects

Analyzing a Congestion Pricing Model

An economic model predicts that a new tax on gasoline will lead to a decrease in gasoline consumption, holding all other factors constant. However, after the tax is implemented, data shows that gasoline consumption has actually increased. Which of the following scenarios provides the most likely explanation for this discrepancy?

Analyzing an Agricultural Market Model