Ceteris Paribus

Understand Ceteris paribus

In an actual economy everything is going on at one and the same time. It would not be going too far to say that everything is related to everything else, so that cause and effect are often very difficult to isolate.

Why did some price change?

In the buzz of events, it is hard to know what in particular made the difference. For this reason, within economic analysis the approach is to look at the effects of particular circumstances one by one.

Formally, it is said that all other things being equal the effect of a change in some specific particular circumstance on some specific event has been such and such.

We know that other things were happening at the same time, but if we wish to look at the effect of one particular cause on outcomes, then we say that ‘all other things being equal’ — that is, the effect of this one particular change — will have these consequences.

The Latin phrase for ‘all other things being equal’ is ceteris paribus, which is a phrase often used by economists.

For economists, having a factory across the road from a house will, all other things being equal, tend to lower the value of the house, irrespective of whatever other features the house may have.