The Beechmont Crest Guide to Economics
Ceteris Paribus
This is a Latin term. It means “everything else being equal.”
Ceteris Paribus is a concept that economists use to define cause-and-effect relationships that are isolated from external factors. Suppose, for example, that Apple Computer decides to lower the price of its popular iPod device. Economists would assert that this would increase the demand for iPods.
But this statement ignores other factors. Suppose that at the same time, Microsoft releases a cool new product that competes directly with the iPod. If the Microsoft product is successful, the demand for iPods could decrease--- even though Apple has lowered the price of iPods. On the other hand, suppose that the decrease in the price of iPods coincides with an economic downturn. This too could result in a lower demand for iPods, despite the lower price.
So how do economists deal with all these outside issues? They assume ceteris paribus, and focus their analysis only on two closely related factors. Otherwise, it would be impossible to establish any economic theory, because economists would have to account for every possible outside factor that could interfere with a given cause-and-effect relationship.