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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 choose ceteris paribus assumption to study the change in the factors affecting the market easily.

Step by step solution

01

Ceteris Paribus Assumption

Economists choose to assume one factor at a time and hold other elements invariant, to study the change in the factors affecting the market easily. This method is challenging to use in the real world, but this creates the sense of an economic example easier.

02

Example 

The market for regular goods can grow because of the expansion in the payment of a customer or because of a reduction in the costs of these goods. To create their study easier, economists will try to isolate both the variables and assume only one factor at a time, holding another factor constant.

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Most popular questions from this chapter

When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.

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.

  1. There have recently been some important cost-saving inventions in the technology for making paint.
  2. Paint is lasting longer, so that property owners need not repaint as often.
  3. Because of severe hailstorms, many people need to repaint now.
  4. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen

televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and

quantity of flat screen TVs?

What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk.
  1. Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
    a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
    b. The winter is exceptionally cold.
    C. A major discovery of new oil is made off the coast of Norway.
    d. The economies of some major oil-using nations, like Japan, slow down.
    e. A war in the Middle East disrupts oil-pumping schedules.
    f. Landlords install additional insulation in buildings.
    g. The price of solar energy falls dramatically.
    h. Chemical companies invent a new, popular kind of plastic made from oil.
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