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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

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.

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holding large inventories of agricultural products. Why do you think the government cannot simply give the products away to poor people?

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What is total surplus? How is it illustrated on a

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