I’m not letting go of this cake thing just yet. There’s much more to explore! First up, let’s take a look at the way economics is done. In economics, when we wish to elucidate a given concept, we often set up a simple thought experiment in which we hold all confounding factors constant, and just allow the one thing we’re interested in studying to vary. So to take a very simple example, we could propose the following:
Ron has a dollar in his pocket. He walks into a store that has twenty pieces of candy for sale. What is the highest price the store could charge that would allow Ron to buy all the candy?
Now, there’s nothing wrong with this example in a vacuum. It does, however, make a ton of assumptions — that all the candy is interchangeable from both Ron’s and the store’s perspective, that Ron would be willing to spend all his money on candy, that Ron would want all twenty pieces of candy at any price, that no other potential customers are also attempting to buy the candy, and so forth — that, while totally sensible from the limited perspective of our experiment, make it completely inapplicable as, say, a basis for public policy. If anybody were to say the government ought to intervene and set a maximum price of five cents on all candy so Ron can always buy it all, and that this example "proves" it, I suspect that basically nobody would have trouble understanding why that makes no sense.
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