"Ceteris Paribus" is a Latin word which means "things being equal" or "other things being equal". This term is defined is used when all other relevant things, factors, or elements remain the same or unaltered in an economy.
In economics and finance, the term is used to indicate the effect of one economic variable on another while holding constant all other variables that may affect the second variable.
In the subject of Demand & Supply, "ceteris paribus" relates to the theory that if the demand of a given product outweighs the supply for it , prices will rise. "Ceteris paribus" is simply used to show that as long as all other factors that could affect the outcome such as the existence of a substitute good/service remains constant, prices will increase. Factors such as level of income earned, individual tastes & preferences and prices of other goods will remain the same.
An example would be the recent article about the government's efforts to bring down food prices especially with big national festivals such as Hari Raya coming up soon. A simple assumption from this situation would be that the traders have been exploiting the massive surge in demand for foodstuff. This shows that when a rise in demand occurs without a rise in supply, the upward pressure on price is unavoidable.
The goverment has therefore been making preparations to meet the appropriate manufacturers, suppliers and importers in order to dicuss ways to control the prices of food and other essential goods in the country. meat such as chicken has soared as high as RM 14.00 per kg in certain places around the country. This clearly shows that the demand of food is constantly rising but the supply is not rising on the exact same level. Some consumers have thus turned to growing their own food, i.e. fruits and vegetables in order to save money and also to sell them in the "Pasar Tani" where essential foodstuff is often sold at reasonably cheap prices. .
Prepared by: Raveena N, 0314441.
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