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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

What determines the level of prices in a market?

The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram and explain your reasoning for each.

(a) A rise in demand

(b) A fall in demand

(c) A rise in supply

(d) A fall in supply

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 effect of a price ceiling on the quantity demanded of the product? What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

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?
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