The Three E’s of
Economics
Lesson 1.
Economy, efficiency, and effectiveness are highly
interrelated concepts and they are commonly
described as the “3 Es”, characterized as follows:
▪ Economy — Getting the right inputs at the lowest cost (or
getting a good deal).
▪ Efficiency — Getting the most from the inputs (or getting a
lot for the efforts).
▪ Effectiveness — Getting the expected results from the
outputs (or doing the right things).
Figure 1 describes elements of the 3 E’s as well as
the relationships between inputs, outputs and
outcomes.
Positive and Normative
Economics and the Ceteris
Paribus Assumption
Lesson 2.
Ceteris paribus assumption
Ceteris paribus is a Latin phrase, literally translated as
"other things the same," and usually rendered in English as
"all other things being equal." A prediction, or a statement
about causal or logical connections between two states of
affairs, is qualified by ceteris paribus in order to
acknowledge, and to rule out, the possibility of other factors
which could override the relationship between the
antecedent and the consequent.
A ceteris paribus assumption is often essential in all
predictive sciences — in order to formulate scientific
laws it is usually necessary to rule out some unspecified
set of relevant factors which could interfere with the
effect of some causal factor. Experimentally, the ceteris
paribus assumption is realized when a scientist controls
for all of the independent variables other than the one
under study, so that the effect of a single independent
variable on the dependent variable can be separated out.
By holding all the other relevant factors constant, a
scientist is able to focus on the unique effects of a given
factor in a complex causal situation.
Ceteris paribus in Economics
One of the disciplines in which ceteris paribus clauses are most widely
used is economics, in which they are essential to simplify the
formulating of and making predictions under the law of supply and the
law of demand. For example, it can be predicted that if the price of beef
decreases — ceteris paribus — the amount of beef that people buy will
increase. The clause is necessary to separate out the effect of price
decreases from an unspecified (and possibly unspecifiable) multitude of
other factors that could effect how much beef is bought — for example,
less beef will be sold even if the price decreases, if the prices of
substitute goods such as pork or lamb decrease even more in the same
period of time, or if reports come out that beef consumers are at risk of
Mad Cow disease, or if millions of people suddenly convert to
vegetarianism. Ceteris Paribus = "holding all else constant" (So, as to
assume that nothing else affects the supply or demand.
