The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Q_i = α₁P_i+ β₁z_i₁ + u_i1
Q_i= α₂P_i+ β₂z_i₂ + u_i₂
Which of the following are the endogenous variables in this model?

Question

Quizplus · Accepted Answer

The endogenous variables in this model are those that are determined by the model itself and are the focus of the analysis, which in this case are P_i and Q_i. The other variables, such as z_i_1,and z_i₂, are exogenous variables that are determined outside of the model and are not the focus of the analysis. The last choice, D, includes error terms, which are not considered endogenous variables as they are not directly included in the model equations.

The Following Simultaneous Equations Describe the Demand and Supply for a Particular