Chapter 3: Q 2. (page 77)
Why do economists use the ceteris paribus assumption?
The ceteris paribus assumption is used by economists to simplify the analysis of difficult problems.
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How does one analyze a market where both
demand and supply shift?
Table 19. 5 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:
a. The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.
b. A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.
Explain why voluntary transactions improve social welfare.
We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?
Explain why the following statement is false: “In the goods market, no buyer would be willing to pay more than the equilibrium price.”
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