Beyond the Ceteris Paribus Assumption: Modeling Demand and Supply Assuming Omnia Mobilis

Abstract

In this paper we are concerned with the application of multi-dimensional graphs (or Cartesian Spaces) in visualizing and modeling total change in a dependent variable in response to changes in any or all of the (many) independent variables affecting it. Previous literature has used the ceteris paribus assumption to investigate and visualize the effect of each independent variable and obtains total change as a cumulative effect of the parts. The multi-dimensional graph allows the visualization of the omnia mobilis (everything is moving) assumption and further provides an alterative to modeling total change in a dependent variable. The application of this approach to demand and supply is shown. The approach shows that quantity sold in the market is not necessarily equal to the quantity demanded and supplied once the effect of independent variables other than just price is taken into account. Quantity demanded and supplied are mostly in disequilibrium and the quantity sold is a joint function of all the independent variables that affect supply and demand.

Keywords: Ceteris paribus, omnia mobilis, demand and supply, multi-dimensional graphs

JEL Classification: B41