Economics Ceteris paribus

1 economics

1.1 interpretation
1.2 characterization given alfred marshall
1.3 2 uses

economics
interpretation

one of disciplines in ceteris paribus clauses used economics, in employed simplify formulation , description of economic outcomes. when using ceteris paribus in economics, 1 assumes other variables except under immediate consideration held constant. example, can predicted if price of beef increases—ceteris paribus—the quantity of beef demanded buyers decrease. in example, clause used operationally describe surrounding relationship between both price , quantity demanded of ordinary good.

this operational description intentionally ignores both known , unknown factors may influence relationship between price , quantity demanded, , assume ceteris paribus assume away interference given example. such factors intentionally ignored include: change in price of substitute goods, (e.g., price of pork or lamb); change in level of risk aversion among buyers (e.g., due increase in fear of mad cow disease); , change in level of overall demand regardless of current price (e.g., societal shift toward vegetarianism).

the clause loosely translated holding else constant. not imply no other things in fact change; rather, isolates effect of 1 particular change. holding other things constant directly analogous using partial derivative in calculus rather total derivative, , running regression containing multiple variables rather 1 in order isolate individual effect of 1 of variables.

characterization given alfred marshall

the clause used consider effect of causes in isolation, assuming other influences absent. alfred marshall expressed use of clause follows:

the element of time chief cause of difficulties in economic investigations make necessary man limited powers go step step; breaking complex question, studying 1 bit @ time, , @ last combining partial solutions more or less complete solution of whole riddle. in breaking up, segregates disturbing causes, wanderings happen inconvenient, time in pound called ceteris paribus. study of group of tendencies isolated assumption other things being equal: existence of other tendencies not denied, disturbing effect neglected time. more issue narrowed, more can handled: less closely correspond real life. i.e. more apply rule of ceteris paribus further distance ourselves reality, e.g. if hydrocarbon fuels infinite society sustainable.

each exact , firm handling of narrow issue, however, helps towards treating broader issues, in narrow issue contained, more otherwise have been possible. each step more things can let out of pound; exact discussions can made less abstract, realistic discussions can made less inexact possible @ earlier stage. (principles of economics, bk.v,ch.v in paragraph v.v.10).

two uses

the above passage marshall highlights 2 ways in ceteris paribus clause may used: 1 hypothetical, in sense factor assumed fixed in order analyse influence of factor in isolation. hypothetical isolation. example hypothetical separation of income effect , substitution effect of price change, go together. other use of ceteris paribus clause see means obtaining approximate solution. here yield substantive isolation.

substantive isolation has 2 aspects: temporal , causal. temporal isolation requires factors fixed under ceteris paribus clause move relative other influence can taken practically constant @ point in time. so, if vegetarianism spreads slowly, inducing slow decline in demand beef, , market beef clears comparatively quickly, can determine price of beef @ instant intersection of supply , demand, , changing demand beef account price changes on time (temporary equilibrium method).

the other aspect of substantive isolation causal isolation: factors frozen under ceteris paribus clause should not affected processes under study. if change in government policies induces changes in consumers behaviour on same time scale, assumption consumer behaviour remains unchanged while policy changes inadmissible substantive isolation (lucas critique).