Reporter no.

9
Marjorie D. Rapacon
Microeconomics

CETERIS PARIBUS ASSUMPTION

The “ceteris paribus” assumption is a Latin phrase that
means “all other things are being equal” or “holding other
things constant.”
It allows researchers to study the impact of a specific
variable without the interference of external factors.
Importance of Ceteris Paribus Assumption
The need to isolate specific variables in the context of the
ceteris paribus assumption arises from the complexity of
real-world situations.
Without isolating variables, it becomes challenging to
attribute changes to a specific factor.
In essence, isolating specific variables through the ceteris
paribus assumption is a fundamental method for gaining
insight, making predictions, and drawing meaningful
conclusions in a various fields of study.
Limitations of Ceteris Paribus Assumption
 It is a simplification of reality.
 It can be difficult to isolate the effect of any variables.
 It can lead to inaccurate predictions if other variables change
unexpectedly.
Example of Limitations of Ceteris Paribus
In 2008, many economists predicted that the housing market
crash would lead to a mild recession. However, the recession
turned out to be much more severe than predicted. This is
because economists did not adequately account for the
interconnectedness of the financial system and the global
economy.
In 2016, many economists predicted that Brexit would lead to a
significantly decline in the British economy. However, the British
economy has performed better than expected. This is because
economists did not sufficiently taken account the resilience of the
British economy and the fact that British government has taken
steps to mitigate the negative effects of Brexit.
Conclusion:
In practice, the ceteris paribus assumption should be used
cautiously, considering its applicability to specific research
questions and contexts. Researchers often combine ceteris
paribus analysis with real-world validation to enhance the
reliability and relevance of their findings. Despite its
limitations, it remains a valuable tool for gaining insights,
testing hypotheses, and making informed decisions across a
wide range of disciplines.