What is Ceteris Paribus?

Ceteris Paribus is a Latin phrase that translates to "holding all other things constant"

Disclaimer: The Ceteris Paribus "fairy" does not exist!

Why is Ceretis Paribus important in Economics?

In reality, it can be difficult to isolate ALLof the other variables that may influence/change the outcome of what you are trying to study.



Ceretis Paribus is used to rule out the possibility of other factors changing, which may affect the outcome.

It is a way to describe cause and effect
without examining all the other factors

Example 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.

Example Continued..


There may be a possibility that the prices of other meats have
increased to a price higher than beef,
which would make beef the cheaper option,

Due to Ceteris Paribus this will be ignored.

Another Example

When OTHER FACTORS become involved..

Without the Ceteris Paribus Fairy..


Hootie is not a good dog when he goes on walks.

Ceteris Paribus holds everything else constant,
so without the Fairy,
Hootie gets distracted very extremely easily.

Conclusion

Ceteris Paribus allows us to make predictions about a certain good regardless of the circumstances.

This concept is an essential part of basic economic theory.