Ceteris paribus (formerly known as “caeteris paribus”) is a Latin expression that in Spanish can be translated as “everything else constant.” This concept has application in different sciences such as physics, chemistry and mathematics, although it is widely used in the fields of economics and finance.
In this particular case, the economic assumption of “ceteris paribus” raises the methodology of studying a specific variable in relation to the others, with the aim of understanding a certain economic phenomenon.
Likewise, this approach is also supported by the premise that it is possible to analyze a factor that may in turn influence one of the variables that affect a situation, as long as the rest of them are constant.
On the other hand, it should be mentioned that although it is a resource used in various fields of knowledge, the “ceteris paribus” is an analysis, so the results obtained may differ from reality.
It should be noted that the “ceteris paribus” is a methodology mostly applied to study the market and to understand supply and demand. Although the first advances on the subject were made by the French Antoine Cournot, it was the English economist Alfred Marshall who popularized the term.
At the end of the 19th century, Marshall published his some important concepts such as capital, production, value and labor, which – incidentally – became the basis of modern economics.
In the second part of these works, Marshall established the so-called “partial equilibrium theory”, which consists of the analysis of a variable that affects an economic phenomenon. This approach also starts from the assumption that the rest of the variables involved remain constant.
Thanks to this theory, the concept of “ceteris paribus” emerged as a means for the analysis of different economic models.
The phrase comes from Latin, whose literal translation is “other things being equal”, however, with the passage of time a slightly clearer interpretation has been allowed in this regard, which is why it is also understood as “that the rest is keeps constant ”.
This theory is supported by the approach that indicates that a specific variable can be analyzed, to counteract it with the rest that are unchanged.
In view of the aforementioned, some relevant aspects are raised below:
-This method allows the analysis of certain phenomena in a simplified and efficient way, since through this method more complex situations can be understood.
-It should be mentioned that this concept is still used in modern economics, but also in various fields of study such as physics and chemistry.
-Marshall indicated that this methodology allows to study variables individually (in depth), and in any economic model.
-According to some specialists, the “ceteris paribus” is a tool that only allows for static analysis, preventing the integration of situations that may alter the situation being analyzed.
-It serves to raise hypothetical and assumed situations, which can offer the presentation of a significant and, in certain cases, representative panorama.
-It is estimated that thanks to the “ceteris paribus” it is possible to better understand the functioning of supply and demand, as well as its influence on relationships within a society .
From the general use of the concept, the following example can be established, which is one of the most used to explain it:
– “If the trigger of a pistol that is loaded with powder and a bullet is pulled, the pistol will go off.” The “ceteris paribus” applies when it is understood that all the factors in this case are being fulfilled without problems; that is, there are no alterations in the variables.
If not, it would take too much work to specify the possible scenarios in which the ideal scenario is not realized.
Regarding economics and finances
On the other hand, in terms of economics, the following examples can be described:
-If you want to know the effect that there will be on the demand for shoes, a variable that can be considered the “ceteris paribus” is the price. So, at the time of the study, only the analysis of it will be carried out, considering that the others remain the same.
-Following the previous example but from a slightly deeper perspective, you can analyze the other factors that can affect the demand for shoes, such as the price of rival brands, discounts and promotions, income, the tastes of the target audience and the expectations raised by the product.
In this case, it is possible to rely on graphs that allow projecting the possible scenarios according to the factors mentioned above, so that there will be enough information to determine which will be the most appropriate measures, depending on the objective that is established.
However, in any case, it is important to take into account that when the model is applied, it is possible that social components are involved, so the results will not be as accurate and the predictive capacity will be significantly reduced.
About Alfred Marshall
Today Alfred Marshall is considered to be one of the most important economists of his time, whose studies in economics have also influenced scholars in later years.
Likewise, some relevant features of this character can be highlighted:
-The legacy of Marshall is highlighted by two important works, Principles of Economics of 1890, and Industry and Commerce of 1919.
-In the first volume of Principles of Economics , terms that served as the basis for modern economics were exposed, such as: capital, labor, utility and production. In fact, it was used as a basic book for studies on economics and finance.
-On the other hand, in the second volume, Marshall explained the functioning of markets, thanks to the integration of actors such as supply and demand.
-His works stood out because they were focused on changing the paradigm of teaching on the subject , since he used the graphic representation by means of diagrams, in order to make his postulates more understandable.
-Some scholars point out that Marshall is the father of cost analysis today.
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