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Chapter 3: Q. 2 (page 77)

Why do economists use the ceteris paribus assumption?

Short Answer

Expert verified

To determine causation.

Step by step solution

01

Step1. Introduction

Ceteris Paribus is an important assumption, often use in economic theories and models. The latin phrase literally translates to with other things the same. In economics, its use is same as saying- other things being equal or held constant

02

Step2. Explanation

Ceteris Paribus is an important assumption in economics to determine causation. Primarily, when understanding the effect of one independent variable on the dependent variable, the effects of other independent variables need to be held constant. That is exactly what we try to attain by asserting the assumption of Ceteris Paribus.

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Most popular questions from this chapter

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.

Consider the demand for hamburgers. If the price

of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will happen to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.

Table 3.8 shows the information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.

PriceQdQs
\(1205036
\)1504040
\(1803248
\)2102856
\(2402470

(a) What is the quantity demanded and quantity supplied at a price of \)120?

(b) At what price is the quantity supplied equal to 48,000?

(c) Graph the demand and supply curves for bicycles. How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the table? What are the equilibrium price and the equilibrium quantity?

(d) If the price was $120, what would the quantities demanded and supplied be? Would a shortage or surplus exist? If so, how large would the shortage or surplus be?

Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Show your answer graphically.

If a price floor benefits producers, why does a price floor reduce social surplus?
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