The Importance of Assumption of Ceteris Paribus Determining Causation

In economics, the assumption of ceteris paribus, a Latin phrase meaning "with other things the same" or "other things being equal or held constant," is important in determining causation. It helps isolate multiple independent variables affecting a dependent variable. Causal relationships among economic variables are difficult to isolate in the real world since most economic variables are usually affected by more than one cause, but models often depend on an assumption of independent variables.

In the real world, for instance, it would be nearly impossible to determine the causal relationship between the price of a good (dependent variable) and the number of units demanded of it (independent variable), while also taking into account other variables that affect price. For example, the price of beef may rise if more people are willing to purchase it, and producers may sell it for a lower price if fewer people want it. But prices of beef may also drop if, for instance, the price of land to raise cattle also drops, making it difficult to assume it was demand alone that caused the price change.

However, if these other variables, such as prices of related goods, production costs, and labor costs are held constant under the ceteris paribus assumption, it is simpler to describe the relationship between only price and demand.

Ceteris paribus is also used in other fields such as psychology and biology. These fields have ceteris paribus laws that are assumed to be true only under normal conditions.

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