When we mention the expression Ceteris paribus we are referring to a term or phrase in Latin (originally Other things being equal) which refers to everything else being constant. It is normally used in economic and financial analysis, to be able to explain certain aspects and save time.
When the term ceteris paribus is used, the author or the person who is explaining something tries to tell us that apart from the variable that he is explaining, the other factors that intervene in the process remain constant or the same.
The origin of the concept was thanks to Marshall, when he tried to explain the partial equilibrium model. The purpose of this economist was to be able to individually observe the relationships existing in a mercado, considering the rest of the immovable variables of the economy.
Other things being equal advantages of
Here are some benefits of using this concept:
- Using the ceteris paribus term helps to simplify the analysis, since it indicates that one of the variables of the model is the one that changes, following the constant remainder. In practice, really, the information we have is not entirely perfect.
- It is useful to be able to analyze the short term; some factors vary over long periods.
- It allows to know the effect that one variable has on another, isolating that fact from others that may happen in parallel.
Other things being equal the desventajas
However, it also has some drawbacks:
- Although we do not want to, the usual thing will be that some of the elements of the model change at the same time.
- As we have said previously, the proposed model is ideal for studying the short term, so the long term is not within the objectives of these analyzes. Therefore, the more time passes, the more circumstances can change.