Ceteris Paribus

What is ceteris paribus?

Ceteris paribus is a Latin phrase that translates to "all other things being equal" in English. In simple terms, it's used in various fields such as economics, to indicate a situation where everything else remains unchanged except for the specific factors being considered. 

This allows for the examination of the impact of one particular variable while assuming that other relevant factors do not change during the analysis. 

What is an example of ceteris paribus in practice? 

Suppose you want to understand how changes in proximity to train stations affect housing prices. You decide to analyse houses in a specific neighbourhood while holding other relevant factors constant (ceteris paribus). In this case: 

• You select houses with similar sizes, layouts, and amenities.
• You consider houses with similar crime rates.
• You control for the age and condition of the houses.

Now, with these other factors held constant, you can focus on how the distance to a train station impacts the selling prices of these houses. If you find that houses closer to the subway station tend to have higher prices, you could attribute this price difference to the proximity to public transportation, assuming that the other controlled factors have not influenced the results. 

Is ceteris paribus an assumption? 

Ceteris paribus is considered an assumption or a simplifying concept in various fields. The ceteris paribus assumption is considered unrealistic in the sense that, in the real world, it can be challenging to keep all other relevant factors constant. 

In practice, many factors are changing simultaneously, and isolating the impact of one specific variable while holding all others constant can be difficult.