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Chapter 3: Q 22. (page 78)

When analyzing a market, how do economists deal with the problem that many factors that affect the market

are changing at the same time?

Short Answer

Expert verified

Economists prefer to consider one factor at a time and keep the other factors fixed.

Step by step solution

01

Step 1. Define market.

A market refers to a place for buyers and sellers to enable the exchange of products and services.

02

Step 2. How do economists dealwith the problem that many factors that affect the market are changing at the same time?

Economists prefer to consider one factor at a time and keep the other factors fixed in order to study the change in the factors impacting the market more easily. Although this method is difficult to implement in the actual world, it simplifies the understanding of an economic model.

For example, demand for ordinary items can rise as a consumer's income rises or as the price of these goods falls. Economists will strive to isolate both variables and consider only one factor at a time, keeping the other constant, in order to make their study easier.

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Most popular questions from this chapter

Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded to be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

a. There have recently been some important cost-saving inventions in the technology for making paint.

b. Paint is lasting longer, so that property owners need not repaint as often.

c. Because of severe hailstorms, many people need to repaint now.

d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?

Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.

Explain why the following statement is false: “In the goods market, no buyer would be willing to pay more than the equilibrium price.”
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