Ceteris paribus, if negotiations lead to lower wages for airline employees, what
ID: 2689391 • Letter: C
Question
Ceteris paribus, if negotiations lead to lower wages for airline employees, what will be the result in the market for air travel? Answer a) an increase in equilibrium price and an increase in equilibrium quantity b) an increase in equilibrium price and a decrease in equilibrium quantity c) a decrease in equilibrium price and an increase in equilibrium quantity d) a decrease in equilibrium price and a decrease in equilibrium quantity e) an increase in equilibrium price and an indeterminate change in equilibrium quantityExplanation / Answer
One of the disciplines in which ceteris paribus clauses are most widely used is economics, in which they are employed to simplify the formulation and description of economic outcomes. When using ceteris paribus in economics, assume all other variables except those under immediate consideration are held constant. For example, it can be predicted that if the price of beef increases—ceteris paribus—the quantity of beef demanded by buyers will decrease. In this example, the clause is used to operationally describe everything surrounding the relationship between both the price and the quantity demanded of an ordinary good. This operational description intentionally ignores both known and unknown factors that may also influence the relationship between price and quantity demanded, and thus to assume ceteris paribus is to assume away any interference with the given example. Such factors that would be intentionally ignored include: the relative change in price of substitute goods, (e.g., the price of beef vs pork or lamb); the level of risk aversion among buyers (e.g., fear of mad cow disease); and the level of overall demand for a good regardless of its current price level (e.g., a societal shift toward vegetarianism). The clause is often loosely translated as "holding all else constant."