Meaning of Ceteris Paribus

Topics: Supply and demand, Ceteris paribus, Economics Pages: 2 (455 words) Published: October 6, 2012
CETERIS PARIBUS is a Latin phrase that translates approximately to "holding other things constant" and is usually rendered in English as "all other things being equal". In economics and finance, the term is used as shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable One of the disciplines in which ceteris paribus clauses are most widely used is economics, in which they are employed to simplify the formulation and description of economic outcomes. When using ceteris paribus in economics, assume all other variables except those under immediate consideration are held constant, . In effect all extra variables remain unchanged and there are no outside influences on the variables being looked at. The only variables being considered are price and demand. It does not take into account any other things, such as inflation, product improvements, etc. This allows for the explanation, examination and understanding of basic economic rules. This operational description intentionally ignores both known and unknown factors that may also influence the relationship between price and quantity demanded, and thus to assume ceteris paribus is to assume away any interference with the given example. Such factors that would be intentionally ignored include: the relative change in price of substitute goods, (e.g., the price of beef vs pork or lamb); the level of risk aversion among buyers (e.g., fear of mad cow disease); and the level of overall demand for a good regardless of its current price level (e.g., a societal shift toward vegetarianism) In this example, the clause is used to operationally describe everything surrounding the relationship between both the price and the quantity demanded of an ordinary good. when discussing the laws of supply and demand, one could say that if demand for a...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Making Meanings assignment 1 Essay
  • the meaning of business Essay
  • The Meaning of Life Essay
  • Art meaning Essay
  • Essay about THE STUDY OF MEANING
  • Prosperity meaning Essay
  • Meaning of Life Essay
  • The Meaning of “Incurred” Essay

Become a StudyMode Member

Sign Up - It's Free