Ceteris Paribus

Ceteris paribus is a Latin expression meaning "everything else is constant”. It is often used in economic and financial analysis.

The term “ceteris paribus” is used by an author or speaker when explaining the effect of one economic variable on another. It is a way of showing that all other factors remain constant.

For example, "An increase in the price of meat will reduce the quantity demanded of that good ceteris paribus".

History of Ceteris Paribus

The expression was firstly introduced in economics by Alfred Marshall in 1890. In economics and business administration, claims can often be made by examining only one influencing factor (partial analysis) and leaving the other factors unchanged. Only in this way can a change in circumstance be explained by a change in one cause. 

Ceteris paribus requires that all other conditions remain unchanged. This is done in order to eliminate the possibility that other variables may influence the final result when investigating the observed effect. Thus, using this method, we can ensure that the results of the study show only the result of the influence of one variable on the other. 

Origins of ceteris paribus come from the work of economist Alfred Marshall in his partial equilibrium model. The purpose of this was to study each sector of the economy separately, given that the others remained unchanged.

In other words, Marshall's goal was to individually observe the relationship between the various variables in a given market. To this end, it is assumed that the rest of the economy is not moving.

Use of Ceteris Paribus in economics

The use of this locution answers three different situations.

Precise definition of a Ceteris Paribus. The study of an economic reform ceteris paribus makes it possible to determine the precise influence of the reform and to abstract from other economic policy changes that might have been implemented simultaneously.

Exclusion of simultaneous and independent temporal evolutions. We then exclude "natural" changes in the economic environment, i.e. changes that can occur simultaneously and independently. In the first example, this excludes changes in consumer income or preferences (e.g. an increase in vegetarianism).

Advantages and disadvantages of Ceteris Paribus

Among the advantages of the holding methodology, all else being equal, stand out, be noticeable. Simplify the analysis by assuming that only one of the economic model variables changes. This is important given that it is impossible to get accurate information in practice. It is useful to examine the short-run because some factors only change over long periods of time. This allows you to observe the effect of one variable on another in detail, isolating this fact from other events that occur in parallel.

However, this type of study also has disadvantages. It is unrealistic to assume that only one of the factors in the economic model changes simultaneously. On the contrary, it is most common to assume that many elements change simultaneously. This is an inefficient methodology to study in the long run, given that the longer time passes, the more circumstances can change.

Mutatis Mutandis

Mutatis mutandis is a Latin locution, literally meaning "what had to be changed has been changed" and which could be translated in a more current way by "once the necessary modifications have been made".

This locution indicates to the addressee that an analogy is going to be made, a comparison of two similar situations, from which the dissimilarities "that must be changed" will be consciously discarded so that this comparison can be made.

This expression is usually used in connection with a sentence or idea that has been quoted before and understood by the reader. It indicates that later on something has been changed or that one can make an analogy of such a fact, but taking the necessary proportions and changes.

It is a term generally used in Philosophy, Economics and Law, to give parameters to a sentence that has a new term, or to bring out the application of a series of changes already understood and assimilated. It can, however, be applied to any other case that has over-explained meanings as terms, such as in Mathematics, Demography, Statistics, or Actuarial Science.