Other Things Equal

Our simple two-variable graphs purposely ignore many other factors that might affect the amount of consumption occurring at each income level or the number of people who attend IU basketball games at each possible ticket price. When economists plot the relationship between any two variables, they employ the ceteris paribus (other things equal) assumption. Thus, in Figure A1-1 all factors other than income that might affect the amount of consumption are presumed to be constant or unchanged. Similarly, in Figure A1-2 all factors other than ticket price that might influence attendance at IU basketball games are assumed constant. In reality, "other things" are not equal; they often change, and when they do, the relationship represented in our two tables and graphs will change. Specifically, the lines we have plotted would shift to new locations.

Consider a stock market "crash." The dramatic drop in the value of stocks might cause people to feel less wealthy and therefore less willing to consume at each level of income. The result might be a downward shift of the consumption line. To see this, you should plot a new consumption line in Figure A1-1, assuming that consumption is, say, $20 less at each income level. Note that the relationship remains direct; the line merely shifts downward to reflect less consumption spending at each income level.

Similarly, factors other than ticket prices might affect IU game attendance. If IU loses most of its games, attendance at IU games

Was this article helpful?

0 0
Insiders Online Stocks Trading Tips

Insiders Online Stocks Trading Tips

We Are Not To Be Held Responsible If Your Online Trading Profits Start To Skyrocket. Always Been Interested In Online Trading? But Super-Confused And Not Sure Where To Even Start? Fret Not! Learning It Is A Cakewalk, Only If You Have The Right Guidance.

Get My Free Ebook

Post a comment