ABSTRACT
Effective demand is more than just the wanting of something, but it is defined as ‘demand backed by cash’.
Ceteris paribus means ‘all other things remaining unchanged’. In the real world, there are a number of factors that affect the price of a good or service. These are constantly changing and in some instances they work in opposite directions. This makes it very difficult to study cause and effect. Economists use the term ceteris paribus to clarify thinking. For example, it might be said that a fall in the price of a commodity will cause a rise in demand, ceteris paribus. If this caveat were not stated then we might find that, despite the fact that the price of a commodity had fallen, we might observe a fall in demand, because some other factor might be changing at the same time, for example a significant rise in income tax.
