Why is the principle of “other things equal” employed in economics?

Answer 1

ceteris paribus (Latin for everything being equal)

Because the real world is very complicated, economists have to separate out causes to see what the effects would be by themselves. We can only discuss the idea that a rise in the price of a steak will cause a decrease in quantity demanded, if we ignore everything else going on in the economy.

For instance, if the prices of ALL the food went up at the same time, it is doubtful that the quantity of steaks demanded would actually change.
Or, what if everyone lost their job on the same day that steaks went on sale? We would not see the quantity demanded go up, we would actually see it go down.

So, in order to understand economics and make a statement about what causes something to happen, we must assume ceteris paribus.

Answer 2

It's a basic of scientific method. The phrase means that you can expect a given cause (independant variable) toresult in a particular change in another variable (dependant variable) when all other influences are either factored out or held constant.

The problem with this is that it's very difficult to do this in the social sciences (it's not alll that easy in the natural sciences!). Since social scientists are dealing with human beings, the possible variations are effectively infinate. Economists tend to use the phrase "all else being equal" to indicate that very often, the complexity of social behavior being what it is, that in the real world, their principles and particular ideas are going to interact in complex ways. So its a way of reminding themselves that more often than not, other things AREN'T going to be equal.

There is a tendancy, though (especially in economics, but also in other social sciences) to pass over this point--and that's always a mistake. Here's one example (out of about a million I could name). "All else beingequal" people will be likely to buy a stock that is undervalued-thus tnending to raise the price--and sell an overvalued stock, driving the price down. And you will see some assuming that means the market is going up (or down) based on this rational calculation on thep art of investors. But it also happens that a "buying frenzy" will take hold--people become emotionally convinced that "the market is just going to keep rising" even when other indicators show the market is overvalued. As happened in the late 90s with the "dot com" bubble--and of course eventually the bubble burst. (We've seen the same thing more recently in the housing market).

Point is--despite economists belief in "rational choice theory" (which is valid up to a point) people take actions--including economic actions--for a variety of reasons--and not all of them are the result of "rational calculation"--and even when they are, the number of factors influincing economic or other social behavior are so complex that it is a wise social scientist who always reminds him/herself tht their conculsions are valid only as long as "all otherthings are equal."

Answer 3

Mathematically speaking, this is a method isolatating a particular set of metrics.
This is the same theory of running certain sceintific tests in a vacum.
To analyze the true effects of specific variables, you must have a means of gauging how these things impact the result independent of other things.
For example, the unemployment rate of two different countries may be drastically different. But what does this truely mean, if one country is significantly larger than the other? Or a better example would be the cost of living from two different periods in time.