Introducing Supply and Demand
Ceteris paribus is defined as "all else being equal," or "holding all else constant".
Explain the rationale for the assumption of ceteris paribus
- When ceteris paribus is employed in economics, all other variables with the exception of the variables under evaluation are held constant.
- An example of the use of ceteris paribus in macroeconomics is: what would happen to the demand for labor by firms if a minimum wage was imposed at a level above the prevailing wage rate, ceteris paribus.
- An example of the use of ceteris paribus in microeconomics is: what would happen for the demand for a normal good when income increases, ceteris paribus.
- ceteris paribus: all else equal; holding everything else constant
Economics seeks to interpret, analyze and or evaluate situations that occur between individuals, firms and other entities. Due to the potential for multiple agents and other known and unknown external activities to be involved or present but not relevant to an analysis, economics employs the assumption of "all else constant," which is the English translation of the Latin phrase "ceteris paribus".
When the ceteris paribus assumption is employed in economics, all other variables – with the exception of the variables under evaluation – are held constant.