What Are Some Examples of Ceteris Paribus in Economics?
One example of ceteris paribus in economics is when prices go up as demand exceeds supply, when all other factors are disqualified from the analysis, according to Investopedia. "Ceteris paribus" is Latin for "holding other things constant," or "all things being equal."
Another example involves an increase in beef prices that results in less beef sold to consumers, notes Dr. Paul M. Johnson of Auburn University. In this case, ceteris paribus assumes no other factors change with respect to supply and demand. This example does not take into account other meats that consumers can buy, such as chicken, pork, fish and lamb. The price of beef may increase due to higher demand from more advertising, a forecasted beef shortage due to drought, prices in other meats that also rise simultaneously or a new health benefit related to beef. Increased prices mean fewer sales when consumers attempt to find other choices.
Ceteris paribus claims an ideal situation occurs when no other factors drive an economic activity. Prices of a product may rise, even if a substitute product is available, simply because of one factor, notes Investopedia. Ceteris paribus claims all other variables in a situation are independent of the dependent variables being examined in a single, isolated economic analysis.