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Ceteris paribus or caeteris paribus (New Latin: [ˈse.tɛ.ris ˈpa.ri.bus] ) is a Latin phrase meaning "other things equal"; English translations of the phrase include "all other things being equal" or "other things held constant" or "all else unchanged". A prediction or a statement about a causal, empirical, or logical relation between two states of affairs is ceteris paribus if it is acknowledged that the prediction, although usually accurate in expected conditions, can fail or the relation can be abolished by intervening factors.
A ceteris paribus assumption is often key to scientific inquiry, as scientists seek to screen out factors that perturb a relation of interest. Thus epidemiologists, for example, may seek to control independent variables as factors that may influence dependent variables—the outcomes or effects of interest. Likewise, in scientific modeling, simplifying assumptions permit illustration or elucidation of concepts thought relevant within the sphere of inquiry.
There is ongoing debate in the philosophy of science concerning ceteris paribus statements. On the logical empiricist view, fundamental physics tends to state universal laws, whereas other sciences, such as biology, and social sciences such as economics and psychology, tend to state laws that hold true in normal conditions but have exceptions: ceteris paribus laws (cp laws).The focus on universal laws is a criterion distinguishing fundamental physics as fundamental, whereas cp laws are predominant in most other sciences as special sciences, whose laws hold in special cases. This distinction assumes a logical empiricist view of science. It does not readily apply in a mechanistic understanding of scientific discovery. There is reasonable disagreement as to whether mechanisms or laws are the appropriate model, though mechanisms are the favored method.
Economics' ceteris paribus conditions include:
One of the disciplines in which ceteris paribus clauses are most widely used is economics, in which they are employed to simplify the formulation and description of economic outcomes. When using ceteris paribus in economics, one assumes that all other variables except those under immediate consideration are held constant. For example, it can be predicted that if the price of beef increases—ceteris paribus—the quantity of beef demanded by buyers will decrease. In this example, the clause is used to operationally describe everything surrounding the relationship between both the price and the quantity demanded of an ordinary good.
This operational description intentionally ignores both known and unknown factors that may also influence the relationship between price and quantity demanded, and thus to assume ceteris paribus is to assume away any interference with the given example. Such factors that would be intentionally ignored include: a change in the price of substitute goods, (e.g., the price of pork or lamb); a change in the level of risk aversion among buyers (e.g., due to an increase in the fear of mad cow disease); and a change in the level of overall demand for a good regardless of its current price (e.g., a societal shift toward vegetarianism).
The clause is often loosely translated as "holding all else constant." It does not imply that no other things will in fact change; rather, it isolates the effect of one particular change. Holding all other things constant is directly analogous to using a partial derivative in calculus rather than a total derivative, and to running a regression containing multiple variables rather than just one in order to isolate the individual effect of one of the variables.
The clause is used to consider the effect of some causes in isolation, by assuming that other influences are absent. Alfred Marshall expressed the use of the clause as follows:
The element of time is a chief cause of those difficulties in economic investigations which make it necessary for man with his limited powers to go step by step; breaking up a complex question, studying one bit at a time, and at last combining his partial solutions into a more or less complete solution of the whole riddle. In breaking it up, he segregates those disturbing causes, whose wanderings happen to be inconvenient, for the time in a pound called Ceteris Paribus. The study of some group of tendencies is isolated by the assumption other things being equal: the existence of other tendencies is not denied, but their disturbing effect is neglected for a time. The more the issue is thus narrowed, the more exactly can it be handled: but also the less closely does it correspond to real life. I.e. The more we apply the rule of ceteris paribus the further we distance ourselves from reality, e.g. If hydrocarbon fuels are infinite then society is sustainable. Each exact and firm handling of a narrow issue, however, helps towards treating broader issues, in which that narrow issue is contained, more exactly than would otherwise have been possible. With each step more things can be let out of the pound; exact discussions can be made less abstract, realistic discussions can be made less inexact than was possible at an earlier stage.
The above passage by Marshall highlights two ways in which the ceteris paribus clause may be used: The one is hypothetical, in the sense that some factor is assumed fixed in order to analyse the influence of another factor in isolation. This would be hypothetical isolation. An example would be the hypothetical separation of the income effect and the substitution effect of a price change, which actually go together. The other use of the ceteris paribus clause is to see it as a means for obtaining an approximate solution. Here it would yield a substantive isolation.
Substantive isolation has two aspects: temporal and causal. Temporal isolation requires the factors fixed under the ceteris paribus clause to actually move so slowly relative to the other influence that they can be taken as practically constant at any point in time. So, if vegetarianism spreads very slowly, inducing a slow decline in the demand for beef, and the market for beef clears comparatively quickly, we can determine the price of beef at any instant by the intersection of supply and demand, and the changing demand for beef will account for the price changes over time (Temporary Equilibrium Method).
The other aspect of substantive isolation is causal isolation: those factors frozen under a ceteris paribus clause should not significantly be affected by the processes under study. If a change in government policies induces changes in consumers' behaviour on the same time scale, the assumption that consumer behaviour remains unchanged while policy changes is inadmissible as a substantive isolation (Lucas critique).
Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded will equal the quantity supplied, resulting in an economic equilibrium for price and quantity transacted. It forms the theoretical basis of modern economics.
Causality is influence by which one event, process, state or object contributes to the production of another event, process, state or object where the cause is partly responsible for the effect, and the effect is partly dependent on the cause. In general, a process has many causes, which are also said to be causal factors for it, and all lie in its past. An effect can in turn be a cause of, or causal factor for, many other effects, which all lie in its future. Some writers have held that causality is metaphysically prior to notions of time and space.
This aims to be a complete article list of economics topics:
In economics, elasticity measures the percentage change of one economic variable in response to a change in another. If a good's price elasticity of demand is -2, a 10% increase in price causes the quantity demanded to fall 20%.
The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption as measured by their preferences subject to limitations on their expenditures, by maximizing utility subject to a consumer budget constraint.
In economics, the acceleration effect is defined as the positive effect of market economic growth on private fixed investment, for example, compared with the total change in domestic output. More GDP makes society more prosperous as businesses see profits rise. This change manifests itself in an increase in sales and earnings that now maximizes the benefits of capacity. This usually manifests itself in desirable profits and an increase in the profits of the business. It also entices firms to build more factories and other buildings, spending known as fixed investment. In addition, it will attract more customers to consume, which is called the multiplier effect in economics. This change has an excellent improvement to the social economy.
Mutatis mutandis is a Medieval Latin phrase meaning "with things changed that should be changed" or "having changed what needs to be changed" or "once the necessary changes have been made". It remains unnaturalized in English and is therefore usually italicized in writing. It is used in many countries to acknowledge that a comparison being made requires certain obvious alterations, which are left unstated. It is not to be confused with the similar ceteris paribus, which excludes any changes other than those explicitly mentioned. Mutatis mutandis is still used in law, economics, mathematics, linguistics and philosophy. In particular, in logic, it is encountered when discussing counterfactuals, as a shorthand for all the initial and derived changes which have been previously discussed.
In economics, diminishing returns is the decrease in marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, holding all other factors of production equal. The law of diminishing returns states that in productive processes, increasing a factor of production by one unit, while holding all others production factors constant, will at some point return a lower unit of output per incremental unit of input. The law of diminishing returns does not cause a decrease in overall production capabilities, rather it defines a point on a production curve whereby producing an additional unit of output will result in a loss and is known as negative returns. Under diminishing returns, output remains positive however productivity and efficiency decrease.
In economics, a demand curve is a graph depicting the relationship between the price of a certain commodity and the quantity of that commodity that is demanded at that price. Demand curves can be used either for the price-quantity relationship for an individual consumer, or for all consumers in a particular market.
The Stolper–Samuelson theorem is a basic theorem in Heckscher–Ohlin trade theory. It describes the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.
In economics, a reservationprice is a limit on the price of a good or a service. On the demand side, it is the highest price that a buyer is willing to pay; on the supply side, it is the lowest price a seller is willing to accept for a good or service.
Anomalous monism is a philosophical thesis about the mind–body relationship. It was first proposed by Donald Davidson in his 1970 paper "Mental Events". The theory is twofold and states that mental events are identical with physical events, and that the mental is anomalous, i.e. under their mental descriptions, relationships between these mental events are not describable by strict physical laws. Hence, Davidson proposes an identity theory of mind without the reductive bridge laws associated with the type-identity theory. Since the publication of his paper, Davidson has refined his thesis and both critics and supporters of anomalous monism have come up with their own characterizations of the thesis, many of which appear to differ from Davidson's.
In economics, partial equilibrium is a condition of economic equilibrium which analyzes only a single market,Ceteris paribus (everything else remaining constant]] except for the one change at a time being analyzed. In general equilibrium analysis, on the other hand, the prices and quantities of all markets in the economy are considered simultaneously, including feedback effects from one to another, though the assumption of ceteris paribus is maintained with respect to such things as constancy of tastes and technology.
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given period of time. The relationship between price and quantity demanded is also called the demand curve. Demand for a specific item is a function of an item's perceived necessity, price, perceived quality, convenience, available alternatives, purchasers' disposable income and tastes, and many other factors.
In economics, supply is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or to an individual. Supply can be in produced goods, labor time, raw materials, or any other scarce or valuable object. Supply is often plotted graphically as a supply curve, with the price per unit on the vertical axis and quantity supplied as a function of price on the horizontal axis. This reversal of the usual position of the dependent variable and the independent variable is an unfortunate but standard convention.
An ordinary good is a microeconomic concept used in consumer theory. It is defined as a good which creates increased demand when the price for the good drops or conversely decreased demand if the price for the good increases, ceteris paribus. It is the opposite of a Giffen good.
An aggregate in economics is a summary measure. The aggregation problem is the difficult problem of finding a valid way to treat an empirical or theoretical aggregate as if it reacted like a less-aggregated measure, say, about behavior of an individual agent as described in general microeconomic theory. Examples of aggregates in micro- and macroeconomics relative to less aggregated counterparts are:
Monetary inflation is a sustained increase in the money supply of a country. Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services.
Universal causation is the proposition that everything in the universe has a cause and is thus an effect of that cause. This means that if a given event occurs, then this is the result of a previous, related event. If an object is in a certain state, then it is in that state as a result of another object interacting with it previously.
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