What is meant by holding all else equal? How is this concept used when discussing movements along the demand curve? How is this concept used when discussing movements along the supply curve?
What will be an ideal response?
Holding all else equal means that everything other than the variable in question is assumed to remain constant. When we move along a demand curve we are assuming that all of the determinants of the demand for a good other than the price of the good (e.g., income, the prices of other goods) remain constant. When we move along a supply curve we are assuming that all of the determinants of the supply of a good other than the price of the good (e.g., wage rates, the price of raw material, technology) remain constant.
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Which of the following countries will most likely see a future increase in economic growth?
a. one where transportation, sewage and communication systems are strong b. one with high import tariffs placed on foreign-made goods. This will keep out foreign competition c. one where the average mother has 7 children d. one where it is difficult to start a new business. there are many licenses to obtain and fees to pay
If policy makers desire a $30 increase in output and the consumption function is C = 100 + .75(Y-T), then they must
a. increase government spending by $8. b. increase taxes by $10. c. cut government spending and taxes by $10. d. decrease taxes by $10.