Ceterus Paribus

In the world of economics, the Latin phrase ceteris paribus means “all other things remaining constant.” This is a necessary concept as, when evaluating such things as price, supply, and demand in an economic setting becomes a nightmare, if one considers all of the variables that could effect any of those things. So, for this purpose, focusing on currently relevant facts, and assuming all other potential variables actually stay the same, an answer can be had. To explore this concept, consider the following ceteris paribus definition.

Definition of Ceteris Paribus

Pronounced

set-er-is  par-uh-buhs

Noun

  1. Other things being equal
  2. If all other relevant factors, elements, or things remain unchanged

Origin

1600-1650       Latin  (holding other things constant)

What is Ceteris Paribus

The Latin phrase ceteris paribus, which translates in modern English as “all other things being equal,” is most commonly used in matters of finance and economics. This is an important concept in evaluating cause and effect, where the economic variables could be effected by some other variable. For example, ceteris paribus applies in considering that, should the supply of widgets run out while there is great demand, the price of widgets will go up. This assumes that “all other factors remain the same.”

Should, however, the government declare that widgets cause cancer, the demand could suddenly drop, leaving the widget manufacturer broke.

Example of Ceteris Paribus in Use

Should someone wish to discuss the effect changes in one variable, such as availability, on another variable, such as price, without having to discuss the possibility that other variables may also have an effect.

For example:

An explosion at a major oil refinery in the U.S. temporarily decreases the amount of gasoline available to consumers. This decrease in supply will, ceteris paribus (or, assuming all other factors remain the same), result in a price increase in gasoline.

Ceteris Paribus in Scientific Study

In scientific study of a particular thing, it is necessary to be able to examine the effect of a certain variable on that thing – without necessarily taking into account all other possible variables. This is especially true when trying to provide a model, or description, of how the variable and studied thing interact, or effect one another.

For example, ceteris paribus, high heat applied to water results in the creation of steam. Water is the thing being studied, heat is the variable, and the effect is steam. This would be more difficult to explain if other variables, such as the amount of salt in the water, were taken into account during the explanation.

There is another consideration in applying ceteris paribus in scientific study: the study of physics deals in universal laws, but the study of such issues as psychology, behavioral science, and even biology tend to deal with laws that are only true under certain conditions. Many researchers hold that, while these conditional laws are subject to ceteris paribus, laws of fundamental physics are not.

Misconception about Ceteris Paribus

Realists in research and analysis recognize that factors in finance and the economy are in constant change. While one may apply ceteris paribus to make a static, or snapshot, comparison, change is inevitable, and one cannot set those changes aside, holding only one of them constant.

Ceteris Paribus vs. Mutatis Mutandis

The concept of ceteris paribus excludes changes and variables except for those specifically discussed. There is a converse concept that considers that all necessary changes have been made. This is referred to as mutatis mutandis, which is Latin for “things having been changed that have to be changed.”

Mutatis mutandis is most often used to compare two variables, noting that certain necessary changes are so obvious, they do not need to be mentioned.

Ceteris Paribus Example

The people of Consumerville are divided in their loyalties to certain brands of lemon soda. When the price of Brand A Soda increases, the demand for Brand B Soda increases. This is assuming the price of Brand B remains unchanged for the comparison.

If, on the other hand, one attempts to follow through with the comparison, not claiming ceteris paribus, it becomes complicated: once the price for Brand A increases, causing an increased demand for Brand B; the demand for Brand A decreases, the price for Brand B increases, ultimately driving consumers back to Brand A.

Related Legal Terms and Issues

  • Variable – An element, factor, or feature that is likely to change.

Leave a Reply

Your email address will not be published. Required fields are marked *