Ceteris Paribus
Ceteris paribus, meaning 'all other things being equal,' is a fundamental assumption in economic analysis. It allows economists to isolate the effect of one variable by holding all other potentially influential variables constant. This simplification makes economic relationships more manageable for study and prediction.
Real World
When the Bank of England studies how a 0.25% interest rate rise affects borrowing, it assumes ceteris paribus — that inflation expectations, wages, and consumer confidence all stay unchanged.
Exam Focus
State the ceteris paribus assumption explicitly when drawing demand/supply diagrams to access evaluation marks.
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