What does ceteris paribus mean?
Well, it’s latin for “other things being equal.”
But what has that got to do with economics?
Well, Ceteris paribus is often used when making arguments about cause and effect.
The world is so complex its basically impossible to consider every possible variable.
So, the ceteris paribus assumption simplifies the equation so that the direct effect of X on Y can be isolated.
It asks if I change this one thing, what will happen to this other thing, all other things staying the same?
If I increase the price of a product, ceteris paribus, what will happen to demand?
If the minimum wage is increased, ceteris paribus, what will happen to productivity?
Obviously, ceteris paribus arguments have their limitations.
All other things do not stay the same.
A face mask manufacturer at the end of 2019 might have said,
ceteris paribus, if I increase production in 2020,
then the price of my masks will fall next year, all other things being equal.
The variable of a huge global pandemic sweeping the planet was not considered here.
Which at the end of 2019 was fair enough, but erm,
you might want to go ahead and start making those extra face masks…
For a longer explanation and more examples be sure to check out the INOMICS website.
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