In the context of supply, what does ceteris paribus mean?
A) Prices and quantity supplied are equal
B) All other factors are held constant
C) Supply equals demand
D) Other factors vary with supply
Answer (2)
'Ceteris paribus' means 'all other factors are held constant' in the context of supply. This concept allows economists to analyze the effect of one variable, like price, on supply without interference from other changing factors. The correct answer to the multiple-choice question is option B.
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In the context of supply, the term 'ceteris paribus' is a Latin phrase meaning 'all other things being equal' or 'all other factors are held constant.' It is an important concept in economics used to isolate the relationship between two variables by assuming that other influencing factors remain unchanged.
When economists say 'ceteris paribus,' they are analyzing the effect of one specific variable, like price, on another variable, such as quantity supplied, without the influence of external changes. This helps to simplify complex real-world scenarios and focus on the direct cause-and-effect relationship.
If not using ceteris paribus, it would be challenging to determine how changes in one area impact the other because numerous factors can affect economic decisions simultaneously.
In summary, the correct answer is:
B) All other factors are held constant .
