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Ceteris Paribus
The 'Other Things Equal' Assumption in Market Analysis
Explain the importance of the 'other things equal' assumption when analyzing the relationship between two economic variables. To illustrate your explanation, consider the market for gasoline. If an economist wants to isolate the effect of a change in the price of gasoline on the quantity consumers are willing to buy, what are at least three other relevant factors that must be assumed to remain constant? For each factor you list, briefly explain why a change in it would also affect consumers' purchasing decisions.
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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
Analysis in Bloom's Taxonomy
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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?
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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.
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