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Ceteris Paribus
The Usefulness of Unrealistic Economic Models
Utility and Limitations of Ceteris Paribus Analysis
The ceteris paribus assumption, which means 'holding other things constant,' is what allows economic models to make specific predictions, such as how individuals might react to a wage increase. However, the reliability of these predictions is conditional. They are only valid as long as the external factors being held constant in the model do not actually change. If one of these other factors changes simultaneously—for instance, if a workplace nursery were to close at the same time as a wage rise—the model's original prediction may no longer hold true.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.3 Doing the best you can: Scarcity, wellbeing, and working hours - The Economy 2.0 Microeconomics @ CORE Econ
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Utility and Limitations of Ceteris Paribus Analysis
An economic analyst observes that over the summer, the average price of ice cream in a city increased by 10%, and the total quantity of ice cream sold also increased by 15%. The analyst concludes that for ice cream, an increase in price causes an increase in the quantity people want to buy. What is the most significant flaw in the analyst's reasoning?
Predicting Public Transit Demand
Isolating Variables in Economic Analysis
An economist states: 'If the government increases the minimum wage, then unemployment will necessarily increase.' This statement is a valid and complete prediction of the real-world outcome, regardless of any other simultaneous changes in the economic environment.
The 'Other Things Equal' Assumption in Market Analysis
Match each economic statement with the description that best characterizes its use of the 'other things equal' (ceteris paribus) assumption, which is the principle of holding other relevant factors constant to isolate the effect of a single variable.
An urban planner wants to study the isolated impact of a 10% decrease in bus fares on public transit ridership in a city. To do this effectively, the planner must assume other relevant factors are held constant. Which of the following concurrent events would most significantly violate this assumption and make it difficult to determine the true effect of the fare change?
An economist wants to determine the specific effect of a change in the price of coffee beans on the quantity of coffee demanded by consumers. Arrange the following steps in the logical order an economist would follow to conduct this analysis while properly isolating the price effect.
An economist is developing a model to predict how a 5% increase in the price of wheat will affect the quantity of bread supplied by bakeries. To isolate the impact of the wheat price change, the economist must assume that other factors, such as the cost of labor, electricity prices, and oven technology, remain unchanged. This analytical technique of holding other variables constant is known as the ____ assumption.
Evaluating a Policy Recommendation
Utility and Limitations of Ceteris Paribus Analysis
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Effect of a Wage Rise Altered by Nursery Closure
Temporal Limitation of the Ceteris Paribus Assumption
Leather Tanning Market Intervention