Ceteris paribus

Ceteris paribus is a latin phrase which translates to English as “Other things being constant”. This is an important concept used when discussing various topics of Economics.

Let us look into a scenario. We all know that when the price of a product or a service is reduced, the quantity demanded of that product or service will increase. Having this in mind, Fareedha reduced the price of meals served at her restaurant. It was her belief that this would increase sales. However, during that month, the sales fell. Therefore, could this information be used to say that, the law of demand does not apply for restaurants? The answer is No. The reason is, that price is not the only factor which could affect the sales. After she reduced the price, another restaurant may have opened up nearby, giving her competition. In the meantime, the income of the people may have fallen or any other thing that is not in her control might have happened. It is also possible that she needs to look into the quality of the meals served at her restaurant.

Therefore, when comparing the relationship between two variables (the quantity demanded and price in this example), economists will usually say, “If the price of a good decreases, the quantity demanded of that good increases, ceteris paribus.”

Do we have to always use the Latin term for this purpose? The answer is no. We can use the English meaning instead. The Latin phrase is a shorthand that is often used for comparing one variable’s effect on another, with other things that may affect the outcome of the second variable remaining the same.

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