Question

Briefly explain difference between endogenous and exogenous variables and provide one example of each type in the supply and demand model. (Suggested length is 3 sentences)

Answer 1

Exogenous variables are the ones that are determined outside the model under study that means their value is determined outside of the model. On the other hand, endogenous variables are the ones that are determined inside the model or whose value is determined within the model under study.

In the supply and demand model, the quantity and price are endogenous variables (they are determined within the model) and everything else like the income of the consumer, tastes, and preference, etc. are exogenous variables as they are determined outside the model.