Microeconomic principles: The ceteris paribus assumption

2.1 The ceteris paribus assumption

The Latin phrase ceteris paribus means “all other things remaining equal.” Because there are multiple factors influencing any one variable, economists apply this assumption in order to segregate the effect that one factor has on the variable in the question, keeping all other factors unchanged. In other words, if we want to examine the effect of one (independent) variable on another (dependent) variable, we need to ensure, through the ceteris paribus assumption, that the effect of other independent variables on the dependent variable is constant. We will encounter this term quite often throughout this course.

Activity

Boundless: "Ceteris Paribus"

• Read this brief text to learn the formal definition of ceteris paribus. As a practice activity, identify a variable and list the multiple factors that may be influencing it. For example, say you are planning to request an increase in your salary. What are the factors that influence your salary? Do you think you can attribute the change in your salary to any one of these factors if all of the factors influencing it were simultaneously changing?