Definition
Ceteris paribus is Latin for all other things being equal. In economics it is a methodological device: when analyzing how one factor affects an outcome, the analyst assumes every other relevant factor stays fixed, so the effect of the single variable can be examined cleanly.
The real world never holds still, of course. Ceteris paribus is a thought experiment that lets economists reason one cause at a time, much as a scientist controls every variable but one in a laboratory.
Why it matters
How it works
When an economist says quantity demanded falls as price rises, the statement holds only ceteris paribus — income, tastes, and the prices of other goods are presumed unchanged. If one of those held-constant factors actually moves, the entire demand curve shifts, which is a different effect altogether.
The discipline of the assumption is in remembering when it has been relaxed. Good economic analysis names which variables are held fixed and which are allowed to move; sloppy analysis mixes the two and reaches false conclusions. Ceteris paribus is the unstated foundation beneath most diagrams and predictions in economics.