Question

Explain the difference between endogenous and exogenous variables.

Explain the difference between endogenous and exogenous variables.

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Answer #1

Endogenous variables are known as dependent variables and exogenous variables are independent variables that affect the dependent variables. The endogenous variable has no impact on the exogenous variables. We can differentiate endogenous and exogenous variables with the help of a demand and supply diagram. The price is measured in the Y-axis and the quantity on the X-axis. This indicates that they are controlled within the model, or rather endogenous. Factors such as income and preferences that shift the demand curve are exogenous, outside the model. Demand shift can be caused due to rise or fall in income and also when consumer preferences change.

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