Ceteris Paribus
Candlefocus EditorThe concept of ceteris paribus was first introduced by the philosopher John Stuart Mill in his 1848 Principles of Political Economy. Mill argued that, in order to determine the relationship between two economic variables, it is essential to assume that other variables do not affect that relationship. For example, to determine the relationship between the demand and the price of a commodity, other variables such as the cost of production, quality of the product, elasticity of demand, etc. must be assumed to be constant.
Ceteris paribus is often used when testing economic theories. It is also commonly used in policy discussions, as it allows economists to evaluate the likely effect of a particular policy without being distracted by other, possibly uncontrollable, variables. For example, economists may analyze the effect of an increase in taxes on consumers, holding all other variables constant. The idea is to understand what happens when a certain variable is manipulated, without introducing the possibility of confusion brought about by the simultaneous manipulation, or change, of other variables.
Using ceteris paribus to evaluate a change in one variable helps economists understand relative tendencies in the market. Assuming that all other variables remain constant can help economists move beyond assumptions and attempt to test the impact of certain policies on the market or economy. However, it is important to remember that one can never assume that all other things remain equal. Markets are constantly changing, and variables rarely remain constant. As a result, economists must use ceteris paribus judiciously and keep its limitations in mind.