Question

In building a model to analyze economic situations, one of the important assumptions is

Answer 1

Ceteris paribus one of the important assumptions in building a model to analyze economic situations. Ceteris paribus is a definition to explain a situation where other things are kept constant.

 

EXPLANATION:

There are two methods to apply the ceteris paribus clause. The first one is substantive isolation the second one is hypothetical isolation.

• The first one is substantive isolation. It means gaining an estimated solution. Here it would profit substantive isolation. Substantive isolation has two features: causal and temporal.  

• Hypothetical isolation is in the logic that some reason is assumed set to examine the impact of another factor in isolation. The example is the hypothetical separation of the revenue effect and the replacement effect of a price change that go jointly.  

• Temporal isolation needs the factors resolved under the ceteris paribus clause to essentially move so slowly comparative to the other impact that they can be taken as essentially constant anytime. For instance, if vegetarianism extends very slowly, encouraging a slow weakening in the request for beef, and the shop for beef frees moderately quickly, we can decide the cost of beef at any prompt by the connection of demand and supply, and the altering demand for beef will comprise the cost switches time by time(Temporary Equilibrium Method).

• Causal isolation is the other element of substantive isolation: those factors held under a ceteris paribus clause must not considerably be influenced by the procedures under study. If a modification in government policies makes alterations in costumers' behavior on the same time scale, the postulation that customer behavior persists unaffected while policy changes are prohibited as substantive isolation (Lucas critique).

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Keywords : Ceteris paribus, economic situations, causal isolation, temporal isolation, hypothetical isolation,  

Subject  : Business

Class  : College

Sub-Chapter : Economics

Answer 2

One of the important assumptions is ceteris paribus.
Ceteris paribus is a term to describe a situation where other things are held constant.
For example, if we want to know the correlation between number of dropouts and the  total unemployment, we have to make the assumption that number of dropouts is the only factor that could influence unemployment