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CETERIS PARIBUS: A Latin term meaning that all other factors are held unchanged. The ceteris paribus assumption is used to isolate the effect one economic factor has on another. Without this assumption, it would be difficult to determine cause and effect in the economy. Relaxing the ceteris paribus assumption is the primary analytical technique used in the study of economics, especially when analyzing the market. Much like a chemist adds one chemical at a time to a mixture to determine the resulting reaction, an economist relaxes one ceteris paribus assumption at a time to observe the results.

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CONSUMPTION

The use of resources, goods, or services to satisfy wants and needs. At the macroeconomic level, consumption is reflected as expenditures by the household sector on gross domestic product. At the microeconomic level, consumption is important to utility, demand, and market exchanges. Consumption is the ultimate goal of economic activity.

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