Ceteris paribus 1

Ceteris paribus- Being all things are equal

1. Professor & Lawyer Puttu Guru Prasad VVIT- Nambur - Amaravathi ‘Ceteris paribus’ All other things being equal  

2. ‘Ceteris paribus’ All other things being equal   To understand the law of demand, the law of supply, and many other important economic concepts , it's important that you first understand the term  ceteris paribus .

3. ‘Ceteris paribus’ All other things being equal   Ceteris paribus  is the commonly used Latin phrase meaning 'all other things remaining constant.' When using  ceteris paribus  in economics, it is often safe to assume that all other variables , except those under immediate consideration, are held constant.

4. Ceteris paribus All other things being equal   Why Is It Important in Economics? The concept of  ceteris paribus  is important in economics because, in the real world, it's usually hard to isolate all the different variables that may influence or change the outcome of what you are studying and how an individual might make a decision.

5. Ceteris paribus All other things being equal   It's used in economics to rule out the possibility of other factors changing, which may have an impact on the outcome or decision-making process of individuals.

6. Ceteris paribus All other things being equal For example, in economics, we may say that an increase in the price of beef will decrease the quantity demanded for beef. We often add the phrase or assume , 'all else constant,' at the end

7. Ceteris paribus All other things being equal Why, you might ask? We know from the law of demand that if the price of beef goes up, less beef will be demanded, all else constant.

8. Ceteris paribus All other things being equal Now assume we take away the phrase , 'all else constant.' It now becomes extremely difficult to study the relationship between price and quantity demanded. We open up the entire world to known and unknown factors that may also affect the demand for beef.

9. Ceteris paribus All other things being equal What if the price of pork or chicken went down? Would some people buy less beef and substitute more pork and chicken? Certainly. What if a new study came out linking red meat to high rates of cancer or diabetes? Could that alone affect the demand for beef? Certainly. How about if the beef industry simply increased advertisements about the benefits of eating red meat? Could a large population increase affect the price and demand for beef? Again, the answers are: certainly!

10. Ceteris paribus All other things being equal I give you all of those other possibilities to show you that if you don't include or assume the phrase, 'all else constant,' in economics, it can be almost impossible to identify the true effect of one variable on another. Or, in this case, the simple relationship between a price change for beef and the corresponding change in quantity demanded for beef.

11. Ceteris paribus All other things being equal In the real world, it may be a combination of several things affecting the demand for beef. But to understand the influence of each one of those factors on price or quantity demanded, we must ignore all the other possibilities. It's only then that we can see how each variable affects the other without interference of other outside forces.

12. Examples of  ’ Ceteris Paribus’ Let's look at a few examples to really drive home the importance of  ceteris paribus , 'all else constant.' Say over a period of five years, the price of automobiles rises and so does the number of vehicles sold. That seems to violate the law of demand. The law of demand would have us believe that if the price of automobiles rose, the number of vehicles sold should have decreased.

13. Examples of  ’ Ceteris Paribus’ Ceteris paribus  is a Latin phrase that means “other things being equal.” The term is most commonly used in economics, though it can be used in other fields, including physics and psychology. It is used when people want to explain a situation of cause and effect, but do not want to examine all of the factors in a situation at once; rather, they want to zero in on how the change in just one independent variable will affect another dependent variable when all the other factors in the situation stay the same.

14. Examples of  ’ Ceteris Paribus’ If the price of beef increases, ceteris paribus, people will purchase less beef. In this situation, ceteris paribus means that the possibility of other changes affecting the sales of beef will not be considered. Other things could happen that would keep the sales of beef the same or even increase the sales of beef – for example, the price of other meats could increase even more than the price of beef increased, leaving beef as the cheapest meat available, or the Centers for Disease Control could announce that eating beef prevents cancer, which would most likely increase the sales of beef – but in this situation, we only want to consider what happens if the price of beef rises while keeping all other factors the same.

15. Professor & Lawyer Puttu Guru Prasad VVIT- Nambur - Amaravathi ‘Ceteris paribus’ All other things being equal