Definition of Ceteris Paribus
Ceteris Paribus is a Latin phrase meaning ‘all other things remaining equal’
The concept of ceteris paribus is important in economics because in the real world it is usually hard to isolate all the different variables.
Example of Ceteris Paribus in Economics
An increase in interest rates will ‘ceteris paribus’ cause demand for loans to fall. Higher interest rates increase the cost of borrowing so there will be less demand for loans. However, if confidence was high, people might still want to borrow more. Ceteris paribus assumes things like confidence remain the same.