Ceteris Paribus

Ceteris Paribus - d = f(P Ps Y N Z This explains that...

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Ceteris Paribus (restrictive) clause : The marginal method of economic analysis deals with the rate of small changes. Moreover, these are instant and isolated changes. We need to concentrate on the effect of such changes on concerned individuals. But actually, economic activity is highly complex and consists of interdependent factors. Therefore such isolated changes can be examined only under highly restricted conditions. We have to make a heroic assumption about the constancy or absence of change in all other related factors or causes. For instance, an individual’s demand for a commodity depends on several conditions such as the price of the commodity (P), prices of its substitutes (Ps), income of the individual (Y), the number of members in his family (N) and the tastes of that individual (Z). Such a relation can be expressed in a functional form as :
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Unformatted text preview: d = f (P, Ps, Y, N, Z). This explains that ’d’, the quantity of a commodity demanded, functionally depends upon five different factors. In other words, any change in any one of these factors can result in a change in the quantity demanded. However, the marginal approach is partial in nature. It attempts to concentrate on any one of these factors at a time, in analyzing its effect. The rest of the factors are assumed to be constant . This is the implication of the Ceteris Paribus a condition which means ’ other things remaining equal .’ If we want to concentrate on the isolated effect of changes in the price of the same good (P) on the quantity demanded, then this can be written as : d = f (P) [Ps, Y, N, Z]const. Here the second bracket, i.e. […], serves as a Ceteris Paribus assumption in explaining the price-demand relation....
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