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Thread: What is Ceteris paribus?

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    Default What is Ceteris paribus?

    What is Cateris Paribus?

    Cateris Paribus is an expression in Latin which literally translates into "assuming all things are constant or the same". The easiest example of application in everyday life, for example, the law of gravity states that an object thrown upwards will fall back to the ground, CATERIS PARIBUS gravity will make an object thrown upwards fall to the ground as long as nothing has changed.

    So what if there was something else that kept him floating in the air and not falling to the ground? A strong gust of wind is one example of another that has not taken into account. The law of gravity still applies, even if the object that was thrown upwards did not fall to the ground.

    Scholars use it to explain the theory behind the laws of economics and nature. An economist might argue that raising the minimum wage will increase unemployment, increasing the money supply in the market will cause inflation, reducing marginal costs will increase economic returns for a company, and so on.

    Cateris Paribus in Economics

    Ceteris paribus concepts and phrases are widely used in economics. This is because there are so many variables that are constantly changing. The example of the law of gravity above is easier to understand because there are rarely other things that affect it, where all objects that are thrown upwards, will always fall to the ground, in accordance with applicable natural laws.

    However, this cannot happen in the economic sector. Everything is always changing. That would certainly make it more difficult to make laws of economics than laws of physics. The following is an example of how an economist uses ceteris paribus to explain the law of demand. You have to focus on the independent variable which is demand, and the dependent variable which is price.

    The law of demand states that if demand falls, ceteris paribus, the price will go down to meet demand.

    With the word otherwise, when people want fewer goods or services, sellers lower prices. They can reduce production to reduce supply and keep prices the same, or they can upgrade products to stimulate demand. That's what Apple, Inc. did to keep prices the same. high prices.Sometimes the producer cannot lower the price because the ' cost ' is too high. In this case, of course the volume of demand will decrease.

    Example of Cateris Paribus
    • Interest rates
      When interest rates rise, the demand for debt decreases, because borrowing costs increase. What goes unnoticed is in the broader economy. For example, if a business is doing well and wants to grow, an increase in interest rates will not deter the business from making loans.

      Furthermore, high interest rates occur when money 'floods' the market is high. When the money supply is high, inflation usually occurs. If people expect inflation, they will also expect the real value of their debt to increase.

      While there are other factors that will drive demand for debt, the interest rate is the most influential. That's what economists use ceteris paribus for. We can logically conclude that a higher interest rate will reduce the demand for debt. However, it is also important to conclude that this may not always be the case.
    • Oil Prices

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      During the Great Depression , oil demand fell from 87.8 million barrels per day in the fourth quarter of 2007 to 84.2 million barrels per day in the second quarter of 2009. The law of demand says that oil prices must fall to meet the level of demand. In contrast, oil prices rose from $ 88.96 per barrel in the fourth quarter of 2007 to $ 122.24 per barrel in the second quarter of 2008. Although oil prices fell drastically in the fourth quarter of 2008, oil prices started to rise once again in the second quarter of 2008. second year 2009.
    • Minimum
      wages When the minimum wage increases cateris paribus the demand for these workers decreases. The logic is that companies have to pay their employees more, so it will hire fewer employees. What is not noticed is when there is economic growth. As the economy grows, we will see several industries experiencing an explosion in employee demand. For example, restaurants, retail, and fast food tend to experience increased demand because consumers spend more of their money.

      In turn, the demand for employees will increase, regardless of whether the salary is higher or not. In fact, it can be said that wages will naturally rise. One thing to consider is the fact that the employer may pay a higher minimum wage but reduce other benefits such as overtime pay or bonuses. So the demand for workers may increase, but they receive fewer work benefits.
    • Higher Taxes
      If the government imposes higher taxes, of course the government will receive a higher income. For example, if the income tax rate increases from 20 percent to 25 percent. It is based on ceteris paribus, in which no other variables are changed.

      What has not been noticed is the impact on individuals, especially wealthy individuals. They may leave the country, and ultimately reduce the country's tax revenue.

      Or, a higher tax may apply when the economy is in decline. So, people lose their jobs which reduces consumption. This in turn, automatically, can contribute to lower tax revenues

    Purpose of Using the Paribus Catteries

    The assumption that ceteris paribus is used with the following objectives:
    • To simplify the explanation of a theory. Thus the theory becomes easy to learn.
    • Identify the variables that most influence a theory. The variable constraints discussed make it easier to identify the influencing variables.
    • To state a direct relationship to a variable. By limiting the discussion to the variables that directly influence it.
    • Simplifying a theory. If economic theory uses so many variables, the theory becomes difficult to explain.
    • Helping the analysis become easier. Variables that are more limited in a theory make it easier to analyze the application of the theory in real life.

    Disadvantages of Using Ceteris Paribus

    Ceteris paribus provides a number of advantages, but also has inherent drawbacks. This means that these weaknesses cannot be avoided, as a consequence of using this ceteris paribus assumption. These weaknesses include:
    • There are a number of important factors that have been ignored, resulting in the theory being inaccurate. To overcome this, another theory is usually issued to complement the old theory, or to become a substitute theory for the old theory, whose variables are more complete.
    • The assumptions that are limited in a frame lead to inappropriate actions in the real world. In fact, this theory does not solve the problem, instead it adds to the problem because the recommendations given by a theory are incorrect.

    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


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    Ceteris paribus is a term in economics which means to consider all things the same. So you see, Economics is a unique science, which has different characteristics from the exact science. Economics tries to explain various human actions and interactions that are carried out to meet their daily needs. So economics does describe what happens in people's lives in real terms. Because all things in the real world are inevitably interrelated (even though with different intensities and levels of relationship), to make it easier to understand theory and economics, it is common to make various assumptions to make it easier for a learner of economics to understand the theory and laws. the economy.

    With this assumption, students of theory and economics will be able to get a correct understanding of all theories. But still it must be remembered, that the assumptions in ceteris paribus will not happen in the real world. In the real world, things will get more complex, and all the variables will come into play.

    Sample case
    For example, for example, when studying substitution items. For example, we take the example between rice and cassava. In theory, when there is rice difficulty, for example due to crop failure, the price of rice will increase. The increase in the price of rice was caused by the increase in demand for rice. If the price of rice is too high, it will cause some consumers to switch to cassava as a rice substitute. So theoretically, in economics, it can be stated that an increase in the price of rice will increase the demand for cassava as a rice substitute. In this conclusion, we can see that there is absolutely no consideration and calculation of other variables outside of rice and cassava.

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    Whereas in reality, if we have seen the real world, even though the price of rice is expensive, the demand for cassava will still not increase. This can be due to various variables that occur in real life, for example:
    • Other substitutes that have a higher correlation with rice appear, such as potatoes.
    The government imports rice, so that rice price increases can be suppressed, and consumers do not face rising rice prices.
    That is an example, that it turns out that in real life, a theory may not work because of the influence of other variables, which when we discuss this problem theoretically, we assume no other variables affect and our focus is only on rice and cassava. But the point that is emphasized is understanding how an increase in the price of an item relates to its substituted good. This is Ceteris Paribus

    My View
    So in studying economics, to understand a theory and economic law, we really have to put forward the ceteris paribus principle and use assumptions to facilitate our understanding of the theory. But we also have to be realistic and understand that in real life, this ceteris paribus does not apply, and the application of economics in the real world will be more complex following the dynamics that occur in real time.

    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


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    Quote Originally Posted by Last Account     
    What is Cateris Paribus?

    Cateris Paribus is an expression in Latin which literally translates into "assuming all things are constant or the same". The easiest example of application in everyday life, for example, the law of gravity states that an object thrown upwards will fall back to the ground, CATERIS PARIBUS gravity will make an object thrown upwards fall to the ground as long as nothing has changed.

    So what if there was something else that kept him floating in the air and not falling to the ground? A strong gust of wind is one example of another that has not taken into account. The law of gravity still applies, even if the object that was thrown upwards did not fall to the ground.

    Scholars use it to explain the theory behind the laws of economics and nature. An economist might argue that raising the minimum wage will increase unemployment, increasing the money supply in the market will cause inflation, reducing marginal costs will increase economic returns for a company, and so on.

    Cateris Paribus in Economics

    Ceteris paribus concepts and phrases are widely used in economics. This is because there are so many variables that are constantly changing. The example of the law of gravity above is easier to understand because there are rarely other things that affect it, where all objects that are thrown upwards, will always fall to the ground, in accordance with applicable natural laws.

    However, this cannot happen in the economic sector. Everything is always changing. That would certainly make it more difficult to make laws of economics than laws of physics. The following is an example of how an economist uses ceteris paribus to explain the law of demand. You have to focus on the independent variable which is demand, and the dependent variable which is price.

    The law of demand states that if demand falls, ceteris paribus, the price will go down to meet demand.

    With the word otherwise, when people want fewer goods or services, sellers lower prices. They can reduce production to reduce supply and keep prices the same, or they can upgrade products to stimulate demand. That's what Apple, Inc. did to keep prices the same. high prices.Sometimes the producer cannot lower the price because the ' cost ' is too high. In this case, of course the volume of demand will decrease.

    Example of Cateris Paribus
    • Interest rates
      When interest rates rise, the demand for debt decreases, because borrowing costs increase. What goes unnoticed is in the broader economy. For example, if a business is doing well and wants to grow, an increase in interest rates will not deter the business from making loans.

      Furthermore, high interest rates occur when money 'floods' the market is high. When the money supply is high, inflation usually occurs. If people expect inflation, they will also expect the real value of their debt to increase.

      While there are other factors that will drive demand for debt, the interest rate is the most influential. That's what economists use ceteris paribus for. We can logically conclude that a higher interest rate will reduce the demand for debt. However, it is also important to conclude that this may not always be the case.
    • Oil Prices
      During the Great Depression , oil demand fell from 87.8 million barrels per day in the fourth quarter of 2007 to 84.2 million barrels per day in the second quarter of 2009. The law of demand says that oil prices must fall to meet the level of demand. In contrast, oil prices rose from $ 88.96 per barrel in the fourth quarter of 2007 to $ 122.24 per barrel in the second quarter of 2008. Although oil prices fell drastically in the fourth quarter of 2008, oil prices started to rise once again in the second quarter of 2008. second year 2009.
    • Minimum
      wages When the minimum wage increases cateris paribus the demand for these workers decreases. The logic is that companies have to pay their employees more, so it will hire fewer employees. What is not noticed is when there is economic growth. As the economy grows, we will see several industries experiencing an explosion in employee demand. For example, restaurants, retail, and fast food tend to experience increased demand because consumers spend more of their money.

      In turn, the demand for employees will increase, regardless of whether the salary is higher or not. In fact, it can be said that wages will naturally rise. One thing to consider is the fact that the employer may pay a higher minimum wage but reduce other benefits such as overtime pay or bonuses. So the demand for workers may increase, but they receive fewer work benefits.
    • Higher Taxes
      If the government imposes higher taxes, of course the government will receive a higher income. For example, if the income tax rate increases from 20 percent to 25 percent. It is based on ceteris paribus, in which no other variables are changed.

      What has not been noticed is the impact on individuals, especially wealthy individuals. They may leave the country, and ultimately reduce the country's tax revenue.

      Or, a higher tax may apply when the economy is in decline. So, people lose their jobs which reduces consumption. This in turn, automatically, can contribute to lower tax revenues
    • See also: Invest in the most successful traders. More details.


    Purpose of Using the Paribus Catteries

    The assumption that ceteris paribus is used with the following objectives:
    • To simplify the explanation of a theory. Thus the theory becomes easy to learn.
    • Identify the variables that most influence a theory. The variable constraints discussed make it easier to identify the influencing variables.
    • To state a direct relationship to a variable. By limiting the discussion to the variables that directly influence it.
    • Simplifying a theory. If economic theory uses so many variables, the theory becomes difficult to explain.
    • Helping the analysis become easier. Variables that are more limited in a theory make it easier to analyze the application of the theory in real life.

    Disadvantages of Using Ceteris Paribus

    Ceteris paribus provides a number of advantages, but also has inherent drawbacks. This means that these weaknesses cannot be avoided, as a consequence of using this ceteris paribus assumption. These weaknesses include:
    • There are a number of important factors that have been ignored, resulting in the theory being inaccurate. To overcome this, another theory is usually issued to complement the old theory, or to become a substitute theory for the old theory, whose variables are more complete.
    • The assumptions that are limited in a frame lead to inappropriate actions in the real world. In fact, this theory does not solve the problem, instead it adds to the problem because the recommendations given by a theory are incorrect.
    In Economics lessons in SMA (Senior High School) we have often learned what Ceteris Paribus is. Ceteris Paribus is a term that is quite thick with the demand and supply in the market. Ceteris Paribus is an assumption in the law of supply and demand that factors other than price are considered constant. The actual level of demand in the market is specifically influenced by several things such as distribution and population, geographical conditions, gender, distribution and consumer income, consumer tastes and choices and prices and product availability, but ceteris paribus considers these things to be constant or the value is equal to 1 (no effect).

    Ceteris Paribus itself is Latin and if in English it is the same as "all other things being equal", if interpreted literally means "when other conditions are the same". The term is then used as a term in economic theory to simplify various economic assumptions or simplify the various variables to be studied. The function of simplifying the variables that are considered constant is so that formulas and values ​​can be found to explain them and can be compared with control variables. Ceteris paribus is often used in micro and macro economic analysis, especially in analyzing the existing supply and demand in the market.

    Example of Ceteris Paribus

    A simple example is when the price of a good falls, the demand will increase, on the other hand, if the price of the good increases, the demand will decrease. This can be applied using an assumption in the form of ceteris paribus.

    The price of duck eggs will increase, ceteris paribus, if the demand for duck eggs by consumers also increases. This condition means that there is a direct relationship between the increase in the price of duck eggs and the number of consumer demands, whereas in fact there are other factors that influence the amount of demand such as consumer taste, whether many consumers prefer to buy duck eggs or chicken eggs, the price of duck eggs than chicken eggs and so on. . However, due to the assumption that other factors that affect the quantity of duck egg demand or price are considered constant, the relationship between the price and demand for duck eggs can be considered opposite.

    Use of Ceteris Paribus

    Ceteris Paribus can be used in economic analysis, namely in the analysis of the demand and supply of goods or services.

    Ceteris Paribus in Demand analysis

    In general demand law we know that the cheaper the price of an item, the demand will increase, on the other hand, the more expensive the price of an item, the amount of demand will decrease. Even though there are still other factors that affect the amount of demand other than the price of goods, there are even items that are more expensive, the more demanded will increase, for that in analyzing we must also look at the types of goods being offered. In economic analysis, goods are usually divided into several types such as complementary goods, substitute goods, inferior goods and superior goods.

    By knowing the type of goods so that we will also know the characteristics of the goods so that we do not arbitrarily assume other factors as constant numbers, if other factors can be assumed to be constant then ceteris paribus applies. That is why ceteris paribus is assumed to be when the price of goods increases, the demand will decrease and vice versa.

    Ceteris Paribus in supply analysis

    In the aspect of supply, the use of ceteris paribus is related to the profits calculated by the producer as the party offering the goods. In the supply analysis, the more expensive the price of a product, the more the supply will increase, this takes into account the economic principle adopted by the producer, namely getting the maximum profit at the least possible cost.

    Whereas in the supply of goods, many other factors influence the level of profit, government policies, the projection of demand for goods, incentives and so on. Therefore, in applying ceteris paribus which produces an accurate analysis of the relation between price and demand, these factors are considered constant.

    Benefits of Ceteris Paribus
    Increase the accuracy of a study - the ceteris paribus assumption will help increase the accuracy of the study because many variables that are considered constant and unimportant variables are omitted, so that calculations can focus more on the variables to be studied only. The results that will be obtained will automatically be more accurate than taking into account many variables which may be more confusing, less focused and tend to be less accurate.

    Simplify a fairly complex economic analysis - the level of difficulty in the analysis and the complexity of the variables that must be connected is less if the ceteris paribus assumption is applied. In addition, the time required by a researcher will also be shorter and will be more helpful in completing the analysis, especially in macro economies.

    Isolating the variables to be studied - In addition to increasing the accuracy of the analysis, ceteris paribus also makes it easier to compare it with control variables because there are several isolated variables. Assuming these variables are constant, they can be isolated, which can speed up the analysis and also improve its accuracy.
    Disadvantages of using Ceteris Paribus

    It turns out that ceteris paribus not only provides benefits for economists, but in its use there are also disadvantages, namely the use of ceteris paribus is often considered a theory that causes the economic conditions in a book to be different from the real economy. This happens because in everyday economic life we ​​cannot consider these influencing factors to be constant, that is what often causes the real economy to be different from theory and often requires economists to change and improve analyzes to suit real life. in the field.


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    What is Ceteris Paribus

    Ceteris paribus is a basic assumption in economics which literally means that other things are equal or constant, or if in English it is called "all other things being equal", which gives an explanation, if the price of an item has increased , it is almost certain that there will be a decrease in supply, assuming ceteris paribus or other factors such as price of goods, income and other tastes are considered constant.
    In economics, the term ceteris paribus is often used as an estimate to simplify various formulations and descriptions of various economic assumptions.
    when the price of shallots goes up - ceteris paribus - the quantity demanded will decrease. The phrase ceteris paribus is used to describe the relationship between the price of shallots and the quantity demanded. However, ceteris paribus eliminates other disturbing factors, such as community income, bad weather that affects onion yields, distribution factors and so on.

    Benefits of Ceteris Paribus

    The ceteris paribus prediction here is of course very much needed so that the output of the law of supply and demand remains valid, because there are unexpected variables that could make the assumptions of the law of supply and demand wrong. The existence of substituted goods prevents the price of the goods in question, even though the amount of demand exceeds the quantity supplied.

    Example:

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    At the time of religious holidays such as Eid al-Fitr, the prices of basic necessities usually soar, starting from chicken, beef, fish, eggs, chilies, onions and other household consumption needs. It is the law of the market, if the price of all goods tends to rise, this is a sign that the demand is very much with a limited supply.

    For example, the needs of the Sumtera people at that moment require processed snakehead fish to make tekwan and pempek. Considering that the purchase of snakehead fish is very high, while the fish stock is low, the law of increasing demand for other variables in the form of snapper or puput fish is applied as a substitute for processed snakehead fish for the manufacture of the two snacks.

    Or in another example, if the price of snakehead fish processing will increase - ceteris paribus - if the quantity of snakehead fish processed, which is the main factor demanded by buyers, also increases.


    Conclusion

    Now, the use of the ceteris paribus theory here illustrates that the assumption taken is to ignore the various factors that can affect the correlation between price and quantity demanded. Some of these factors may come from the substitution price, the existence of an element of risk aversion to the goods in question or also the overall level of demand for processed snakehead fish regardless of the price increase.

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    Important for Economics


    Ceteris paribus is significant in financial matters since it encourages us build up some type of comprehension of the systems of financial aspects. At the end of the day, it permits us to shape fundamental understandings and rules that we can use to expand on.

    One of the exemplary instances of ceteris paribus is the organic market bend. At the point when costs rise ( ceteris paribus), request falls. Presently we can acknowledge this reality when all the other things is equivalent. Be that as it may, there are additionally different factors, for example, replacement costs, burdens, the monetary atmosphere, etc.

    Aside from that Ceteris paribus is additionally significant on the grounds that it permits business analysts to recognize a relationship. In spite of the fact that there might be different factors, there might be one phenomenal factor that has an immediate connection with the others. For instance, the hypothesis of market interest.

    Market analysts can't utilize logical techniques, for example, material science to demonstrate causation. All things being equal, market analysts make their examinations by isolating the factors with which they need to contemplate their relationship from any remaining financial powers - confining them from any remaining potential elements.


    Example

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    This concept is generally applied to the law of supply and demand. If the supply of certain goods exceeds the demand, then Ceteris Paribus the price of this product will also increase. That is, as long as there are other factors that influence demand to remain unchanged, the price of a product will increase when the supply is greater than the demand.

    In addition, if the price of a product increases, the demand for this product, its Ceteris Paribus, will decrease. For example, when the price of oil rises, consumers are not motivated to buy oil, thus suppressing demand. This implies that all other determinants of demand remain constant. So, all the same, when the price of oil goes up, the demand for oil goes down.


    Advantages / Benefits

    There are several benefits that help explain the importance of ceteris paribus in economics.
    Offers a way to create a framework for testing economic models.
    Makes economic theory more scientific
    Allows economists to explore many variables through hypothesis testing

    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


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    What is Ceteris paribus?

    In the world of economics, Ceteris Paribus means:

    The term Ceteris Paribus is a Latin term that works in conjunction with the purpose of its use, emphasizing the relationship between cause and effect. Ceteris Paribus is a term commonly used in the world of economics and in general.

    Name: images (11).jpeg Views: 17 Size: 11.3 KB

    The following are examples of usage:
    Due to the small number of employees, the production of Certrais Perbes will be reduced.
    Because you never turn on the AC every night, but, the electricity costs go down.
    Since she remarried, the cost of accommodation has increased.

    Ceteris paribus is the logical consequence of a cause that is common sense. So usually the result of a cause, if there is no element, is something that can be predicted.

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    If you are still confused, in the next chapter I will try to explain it with various parables and other examples.

    Ceteris Paribus as a logic.

    The logical conclusion is long, if I may tell you. But in the real world, lumbering elephants are exposed by the aggression of speeding midgets. To make it easier for readers to understand the term, I will use the example of rice.

    In Pakistan, everyone from Karachi to Sindh should buy rice regularly unless they are on a diet or have diabetes. Just think of Ayesha, she regularly buys the brand Sehat Jia rice every month. This health Jia brand rice suddenly increased by 30%. Indeed. The price hike will transform Ayesha into another brand that is priced equal to the SEHAT JAYA brand.

    But that would be a different story, for example if all the rice in the market increased by 30%. If there is a 30% increase in all rice, the logical consequence of this incident is that Ayesha will continue to buy SEHAT JAYA brand rice.

    Therefore, the logical outcome will always be different depending on the current situation and circumstances. This is what is called Ceteris Paribus.

    The easiest way is to position yourself as the person who will make the decisions. Of course everyone has different preferences. For example, Sahat Jia rice can increase its price by 30%, while others do not. But since ayesha likes this rice, she still buys this brand of rice.

    What is meant by logical conclusion is an action that will be taken by the general crowd or a product that will be created by ignoring personal preferences and the resulting X factor.


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