Hello! Can anyone explain to me more further this example of Ceteris Paribus:
(By the way, Ceteris Paribus is translated as “all other things equal”)
If the supply of the beef increases, ceteris paribus, people will purchase less beef. In this situation, ceteris paribus means that the possibility of the changes affecting the sales of beef will not be considered.
(I just don’t get why the the beef’s increase in price is not considered and why is it called as Ceteris Paribus?) Thanks in advance who ever will answer my questions.
“Supply” is the function that describes how much of a product will be offered at each possible price, and demand is the function that describes how much of a product will be bought at each possible price. For a given demand function, the amount of beef bought will decrease as the price increases - but the function itself remains the same, and thus “all other things are equal.” (if for example, there’s a mad cow scare, or beef is discovered to cure aging, the demand curve itself will change - that’s an example of all things not being equal).
The beef’s decrease in price is considered, that is what is causing demand for beef to go up. I assume you meant up and not down. Ceteris paribus just means you ignore other possibilities. Maybe the reason the supply of beef has gone up is a new type of feed that allows animals to gain mass more quickly but works even better on pigs than cows. This would cause people to consume more pork and less beef. Or everyone in a state suddenly converts to veganism. This would mean more supply of beef but no more demand.
Your example is a little confusing. Did you mean, “if the price of beef increases…”?
In this example, ceteris paribus would mean that we consider the effect of price on demand, while neglecting (for the purpose of simplification or a first approximation) any other factors that might affect demand.
When most folks speak of “Supply”, they are thinking about “Quantity produced”. When economists use that term though they usually are referring to a set of Prices and Quantities. Increasing supply means that at a given price firms will produce more quantity. Similarly, if you hold quantity fixed (I know that’s odd) a shift outwards of the supply curve implies that firms will accept lower prices for output.
Let me make a correction:
“If the supply of the beef increases, ceteris paribus, people will purchase [del]less[/del] more beef.”
The upward sloping supply curve shifts out. If we assuming a downwards sloping demand curve, there will be some combination of higher output (which implies a higher quantity purchased) and a lower price. The supply curve shifts along the demand curve.
So what about “Ceturis paribus”? Look out in the world and everything is changing. Between 20x0 and 20x5 we can imagine cheaper grain increasing the supply of beef. But incomes will be changing as well (so the demand curve will be moving). And other factors will affect the supply curve. “Ceturis paribus” allows us to analyze one thing at a time. It’s not that other factors aren’t important. It’s just that when you have a complicated system, it is best to break it up into parts if you want to understand how it works.
Is there a principle that pertains to price vs. quantity? By which I mean, “If you buy one of these, it will be $5, but if you buy a hundred, it will be $450”. I presume this relates in some way to wholesale and is not a real constant for all goods.
ETA: Except wholesale/retail sounds a little different. But I suspect you have economies of scale in mind.
ETA2: Re: Preceding post. Ceteris Paribus. :smack:
Yes! You’re right. Sorry for the confusion. This is the original example on what I’m asking:
If the price of beef increases, ceteris paribus, people will purchase less beef. In this situation, ceteris paribus means that the possibility of other changes affecting the sales of beef will not be considered.
Sorry everyone for the confusion of my question. This is the original example on what I’m asking:
If the price of beef increases, ceteris paribus, people will purchase less beef. In this situation, ceteris paribus means that the possibility of other changes affecting the sales of beef will not be considered.
(I couldn’t edit my previous post. I’m just a newbie. :P)
Anyway, thank you so much to all who answered my question. I really do appreciate it!
Can anyone explain to me more further this example of Ceteris Paribus:
Thanks in advance who ever will answer my questions. 