Correct. Generally in economics we discuss individual effects while holding other effects equal (ceteris paribus).
To illustrate, if a McDonald's location can sell 1000 big macs a day at $2 per burger, do you expect they'll sell more (or even as many) if they raise the price to $3?
Of course not. This intuition is obvious to everyone until policy gets involved. It would not make sense for employers to want just as much labor when the price goes up. This would imply a perfectly inelastic demand for labor.
> Generally in economics we discuss individual effects while holding other effects equal (ceteris paribus).
Ceteris paribus is Latin for "holding a cat by its paws to look under its tail", named so because it tells you how long you can "hold other effects equal" before you'll be made to regret the attempt.
This is to say, the economy is a system of tight feedback loops, not independently random effects. This is the part I rarely see emphasized wrt. "ceteris paribus". You're trying to hold constant the very effects that will react to change under discussion, which both severely limits the range of a single forecasting step, and should invite conversation about those other effects.
I don't disagree. I brought it up specifically as a constructive criticism of the original McDonald's argument of choosing other restaurants. It's easier to illustrate economic concepts when only one parameter is changing (e.g. price of big mac) vs multiple (e.g. inexpensive McD's vs more expensive alternatives).
As you've pointed out, any economic policy proposal should consider 2nd/3rd/ith order effects.
If 1000 people eat 3000 meals per day and we increase the cost of their food by 50% what effect will that have on the number of meals eaten? Will it go down 50%?
People need to eat. If McDonald’s is the cheapest food or only food available (say because they are the only one available) it won’t matter that they raised their price.
> if a McDonald's location can sell 1000 big macs a day at $2 per burger, do you expect they'll sell more (or even as many) if they raise the price to $3?
I mean, there are other factors in employment decisions. Raising the price to $3 may reduce volume but increase revenue.
To illustrate, if a McDonald's location can sell 1000 big macs a day at $2 per burger, do you expect they'll sell more (or even as many) if they raise the price to $3?
Of course not. This intuition is obvious to everyone until policy gets involved. It would not make sense for employers to want just as much labor when the price goes up. This would imply a perfectly inelastic demand for labor.