Ceteris Paribus

Read this brief text to learn the formal definition of ceteris paribus. As a practice activity, identify a variable and list the multiple factors that may be influencing it. For example, say you are planning to request an increase in your salary. What are the factors that influence your salary? Do you think you can attribute the change in your salary to any one of these factors if all of the factors influencing it were simultaneously changing?

A Microeconomic Example

What would happen for the demand for a normal good when income increases, ceteris paribus? In this case, as depicted in, a consumer's preferences for the good and his demand for complements and substitutes are being held constant along with other attributes that could potentially impact his demand for a good, such as the good's price. The supply of the good and the market and firm characteristics implicit in the shape of the supply curve are also held constant. This allows for an analysis of the increase in income, on the consumer's demand for the single good alone.

Microeconomics: Income and Demand: A consumer is able to purchase a normal good and has a demand curve, D1, which provides the relationship between price and quantity given his preferences, income and other consumption attributes. Assuming an increase in his income, ceteris paribus, his demand curve would shift outward to D2, corresponding to a higher quantity for each purchase price. The consumer would then move his consumption for the good from Q1 to Q2, increasing his purchase of the good.