Ceteris paribus- Being all things are equal

1. ‘Ceteris paribus’
All other things being equal

2. ‘Ceteris paribus’ All other things being
equal
To understand the law of
demand, the law of supply,
and many other important
economic concepts, it's
important that you first
understand the term ceteris
paribus.

3. ‘Ceteris paribus’ All other things being
equal
 Ceteris paribus is the commonly
used Latin phrase meaning 'all
other things remaining constant.'
When using ceteris paribus in
economics, it is often safe to
assume that all other variables,
except those under immediate
consideration, are held constant.

4. Ceteris paribus All other things being
equal
 Why Is It Important in Economics?
 The concept of ceteris paribus is
important in economics because, in
the real world, it's usually hard to
isolate all the different variables that
may influence or change the
outcome of what you are studying
and how an individual might make a
decision.

5. Ceteris paribus All other things being
equal
It's used in economics to rule
out the possibility of other
factors changing, which may
have an impact on the
outcome or decision-making
process of individuals.

6. Ceteris paribus All other things being
equal
For example, in economics,
we may say that an increase
in the price of beef will
decrease the quantity
demanded for beef. We often
add the phrase or assume, 'all
else constant,' at the end

7. Ceteris paribus All other things being
equal
Why, you might ask? We
know from the law of
demand that if the price of
beef goes up, less beef will
be demanded, all else
constant.

8. Ceteris paribus All other things being
equal
 Now assume we take away the
phrase, 'all else constant.' It now
becomes extremely difficult to study
the relationship between price and
quantity demanded.
 We open up the entire world to
known and unknown factors that may
also affect the demand for beef.

9. Ceteris paribus All other things being
equal
 What if the price of pork or chicken went down?
Would some people buy less beef and substitute
more pork and chicken?
 Certainly. What if a new study came out linking red
meat to high rates of cancer or diabetes? Could
that alone affect the demand for beef? Certainly.
 How about if the beef industry simply increased
advertisements about the benefits of eating red
meat?
 Could a large population increase affect the price
and demand for beef? Again, the answers are:
certainly!

10. Ceteris paribus All other things being
equal
 I give you all of those other possibilities to
show you that if you don't include or
assume the phrase, 'all else constant,' in
economics, it can be almost impossible to
identify the true effect of one variable on
another.
 Or, in this case, the simple relationship
between a price change for beef and the
corresponding change in quantity
demanded for beef.

11. Ceteris paribus All other things being
equal
 In the real world, it may be a
combination of several things affecting
the demand for beef.
 But to understand the influence of each
one of those factors on price or quantity
demanded, we must ignore all the other
possibilities.
 It's only then that we can see how each
variable affects the other without
interference of other outside forces.

12. Examples of ’Ceteris
Paribus’
 Let's look at a few examples to really
drive home the importance of ceteris
paribus, 'all else constant.'
 Say over a period of five years, the price
of automobiles rises and so does the
number of vehicles sold.
 That seems to violate the law of demand.
The law of demand would have us believe
that if the price of automobiles rose, the
number of vehicles sold should have
decreased.

13. Examples of ’Ceteris
Paribus’ Ceteris paribus is a Latin phrase that means
“other things being equal.” The term is most
commonly used in economics, though it can
be used in other fields, including physics and
psychology. It is used when people want to
explain a situation of cause and effect, but do
not want to examine all of the factors in a
situation at once; rather, they want to zero in
on how the change in just one independent
variable will affect another dependent variable
when all the other factors in the situation stay
the same.

14. Examples 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.
 Other things could happen that would keep the sales of
beef the same or even increase the sales of beef – for
example, the price of other meats could increase even
more than the price of beef increased, leaving beef as
the cheapest meat available, or the Centers for
Disease Control could announce that eating beef
prevents cancer, which would most likely increase the
sales of beef – but in this situation, we only want to
consider what happens if the price of beef rises while
keeping all other factors the same.

15. ‘Ceteris paribus’
All other things being equal