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Utility and Limitations of Ceteris Paribus Analysis
Temporal Limitation of the Ceteris Paribus Assumption
The ceteris paribus assumption, which holds external factors constant, becomes less reliable when analyzing economic changes over extended periods. The longer the timeframe, the greater the probability that these 'constant' factors will actually change, potentially invalidating the model's conclusions.
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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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An economic model predicts that a 10% increase in the minimum wage will lead to a 3% decrease in employment in the fast-food industry, assuming all other factors remain constant. When evaluating this prediction, why is it more likely to be accurate over a three-month period than over a ten-year period?
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Evaluating the Ceteris Paribus Assumption in Long-Term Analysis
An economic model developed in 1995 predicts that, holding all other factors constant, a 10% increase in the cost of steel will lead to a 4% increase in the price of a new car. This prediction is just as likely to be accurate for the year 1996 as it is for the year 2025.
An economic model's prediction relies on the assumption that external factors remain constant. Match each economic prediction scenario with the most likely level of reliability for this underlying assumption, based on the given timeframe.
An economist is evaluating several predictions, each of which relies on the assumption that 'all other factors remain constant.' Arrange the following predictions in order from the one where this assumption is most likely to hold true to the one where it is least likely to hold true.
As the time horizon for an economic prediction extends further into the future, the validity of the 'all else equal' assumption tends to ____ because the probability of external factors changing increases.
Critique of a Long-Term Economic Model Application
An economic model created in 1985 predicts that a 20% increase in the real price of gasoline will cause a 5% decrease in the quantity demanded for large, low-mileage vehicles, assuming all other factors are held constant. Which of the following best explains why this model's prediction is likely less accurate today than it was in 1986?