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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

Economist consider only one or two factors at a time.

Step by step solution

01

Step 1.

Economists deal with the problem that many factors that affect the market are changing at the same time by taking only one factor, the rest factors remain constant.

Taking only one factor does not apply to real-life scenarios but it helps for a better understanding of the problem & simplifies the Economic model.

02

Step 2.For example:

In comparative advantage theory,

the assumptions are-

  • There are only two countries.
  • only factor of production is labor.
  • In reality, these assumptions are unrealistic because one country does trade with many countries with varieties of goods but theory introduces us to opportunity cost which helps in choosing between different options for production.

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Most popular questions from this chapter

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.

Does a price ceiling change the equilibrium price?

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.

What is deadweight loss?

Will supply curves have the same shape in all

markets? If not, how will they differ?
See all solutions

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