Exogenous variable example
The understanding of real-world scenarios can be improved by the application of exogenous variables. In order to better understand exogenous variables, consider the following scenarios:
External factors in agriculture
Consider that youre modeling your farms production of corn. While some factors can have an impact on your crops, others are unaffected by them Weather and pests that eat crops are examples of exogenous variables. This is due to the fact that these variables cannot be influenced by other model variables. They can influence how many or how few crops grow, but the crops cannot influence them.
Tax rates
Consider that you founded your own business and earned a net income of $200,000 the previous year. Your net income would be determined by a number of variables, such as the tax rate. The tax rate is an exogenous variable because it cannot be influenced by other model variables.
What is an exogenous variable?
Exogenous variables are a particular kind of variable used in economic models, which use variables and relationships between variables to represent economic processes. Mathematical models, visual models, and other types of economic models are possible. A variable that exists outside of the economic model is known as an exogenous variable. The value of exogenous variables is determined by factors not included in the economic model.
Exogenous variables are similar to independent variables in that they are unaffected by variables found in the economic model. Notably, the economic model cannot predict the value of exogenous variables because they exist outside of the model.
Endogenous variable examples
Here are some examples of real-world situations involving endogenous variables:
Cookies sold by a bakery
Take into account that you are simulating the daily production of cookies by a bakery. How many cookies the bakery sells would be the endogenous variable in this scenario. The model’s exogenous variables, such as the labor force size and the cost of the cookie ingredients, affect the endogenous variable, which is the quantity of cookies sold.
Lamps produced by a manufacturer
Consider a lighting manufacturer simulating the number of lamps it produces. The price of lamp parts is one of the model’s other variables that affects how many lamps are produced. Consequently, in this situation, the endogenous variable is the quantity of lamps produced.
What is an endogenous variable?
An economic model’s endogenous variables are those whose values are determined by the model. The endogenous variable is the dependent variable, which means that the other variables in the model affect its value. The economic model can forecast the value of the endogenous variable because it contains the endogenous variable. Exogenous variables are independent variables that the economic model cannot predict, whereas endogenous variables are the opposite of exogenous variables.
Why are exogenous and endogenous variables important?
In fields like economics, statistics, and other fields, both exogenous and endogenous variables are significant. It is crucial for economists, financial analysts, and people in other professions to comprehend these variables because both types of economic variables can affect economic models and the business cycle. Real-world applications of exogenous and endogenous variables can include:
Tips for classifying variables
In addition to understanding what exogenous and endogenous variables are, it’s critical to know how to categorize variables as exogenous or endogenous. The following advice will assist you in categorizing variables:
Determine whether the variable depends on other variables
One suggestion is to think about whether a variable depends on other variables before classifying it. Exogenous variables are independent, and endogenous variables are dependent. Consequently, a variable is exogenous if it depends on no other variables in the model. However, a variable is considered endogenous if it depends on other variables in the model.
Consider whether your economic model can predict the variable
Consider whether the economic model you’re using can forecast the value of the variable as another suggestion for categorizing a variable. The model can forecast the value of the variable if it is endogenous because endogenous variables are present in the model. However, if the variable is exogenous, a model cannot predict its value because exogenous variables exist outside of the model.
Use mathematical equations
Using mathematical methods can be another strategy you can use to help you categorize variables. Using concurrent equations, you can categorize variables as exogenous or endogenous. If a variable is exogenous, equations cant explain it. However, equations ought to be able to explain a variable if it is endogenous.
The difference between endogenous and exogenous varaibles
FAQ
What are exogenous variables?
An exogenous variable is a particular kind of variable in an economic model, which is a model that uses variables and relationships between variables to depict economic processes. Mathematical models, visual models, and other types of economic models are possible.
What is exogenous variable give an example?
A variable that is exogenous is one that is unaffected by other variables in the system. For example, take a simple causal system like farming. Weather, farmer skill, pests, and seed availability are all exogenous factors that affect crop production.
What is an exogenous variable in research?
Exogenous variables serve to explain other model variables or outcomes by having a cause that is independent of the model.
What are endogenous variables?
A variable in a statistical model that is affected by or determined by its interactions with other variables in the model is known as an endogenous variable. In other words, an endogenous variable is the same as a dependent variable and correlates with other variables in the under investigation system.
