Question

During the summer, the largest computer game retailer has a massive sale. As prices for computer games fall, consumers purchase more games, ceteris paribus. 1. What does the term ceteris paribus mean in the statement above? O That the basic concepts of economics do not apply. That it is an easy to understand statement and does not require complex analysis. Allowing all economic variables to change. Holding all else equal (unchanged). O O 2. Why, if at all, is the ceteris paribus condition important in economic analysis? O It is not important It allow us to analyze how changes in every economic variable at once affects an economic environment o It allows us to analyze how a single change affects an economic environment.

Answer 1

The term 'ceteris means other remaining constant, that is holding of all other variables constant. Here the price of the computer games is not dependent alone on the price there are many other factors such as the Income, taste and preferences, availability of the substitutes. If we want to determine the effect of price alone on the quantity demanded we have to hold other determinants constants. the term is important because this allow is to identity how a single changes affects an economic environment. Holding all else equal. It allows the analysis of now a single change affects an economic environment.