Principles of Economics/Assumptions Economists Make

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Ceteris paribus[edit]

This idea leads into another basic tenet of economics. In any economic analysis, we usually assume that everything outside of the problem at hand remains constant. For instance, some variables in our unemployment and inflation model will actually erase the tradeoff. This happened in the 1980s and 1990s in the United States, where there was low unemployment and low inflation at the same time. However, for the most part the model is almost always correct. Thus, for the purposes of examining those two variables, economists usually assume that all of the other possible variables effecting those remain the same. Economists call this ceteris paribus or the other things being equal assumption. When considering economics, it is helpful to first evaluate only two variables, and then to examine the effects of other upon the model.