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In Economics, the concept of Ceteris Paribus is highly important. It helps in simplifying and understanding the relationship between various economic variables and forces too. In order to understand the law of the demand, the law of the supply and other variety of economic ideas, it is essential to understand what is ceteris paribus. It is a common Latin term used to mean “all other things remaining constant”. In economics, when the term is used, it is safe to assume that all of the variables are constant expect for those which are the immediate considerations. It is extremely important because in the real life, it is quite hard to isolate all of the different variables which might influence the results of what an individual is studying. It is also used in economics because it helps to rule out the possibility of the other factors which are changing and having an impact on the decision-making process of certain individuals. It is highly crucial in the study of cause and effect relationships because there are other relevant factors too which influence these variables. The opposite concept of this phrase is the concept of “mutatis mutandis” which state that there are some changes in factors that need to be changed. The term Ceteris Paribus often symbolizes a basic assumption for the predictive purpose of scrutiny.
Taken for example, in the real world, it would be next to impossible to determine whether the relationship between the demanded number of units and number of dependent variables will be established or not having taken into account the different variables which affect price. Again it can be said that, if the other variables such as the productions costs and the labour costs along with prices of the related goods are constant under ceteris paribus assumption. Hence, it is simple to explain the relationships between demand and price. It is to be noted that, Ceteris Paribus is further used in different fields such as biology and psychology. These fields have few laws related to Ceteris Paribus which are assumed to be true under normal conditions. It is well known that Ceteris paribus is extensively used in the field of economics.
This is because there are different variables which are constantly improving. The law of the gravity is quite easy to understand as it is rare to intervene. It is not only about economics because the variables are everyday changing. It makes it difficult in the creation of economic laws than the creation of the physical laws. This is the place Ceteris Paribus makes the economics simple. It helps to imagine a situation where only two of the variables change. The economists might use the ceteris paribus for explaining the law of demand. Te independent variable needs to be focused at, along with the demand, the price and the dependent variable. Notably, the law of demand says that “if demand drops, then the prices will fall in order to meet the demands”.
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