LEARNING OBJECTIVES
After you have read this section, you should be able to answer the following questions:
What are exogenous and endogenous events?
How does the equilibrium of a market respond to changes in exogenous variables?
What is comparative statics, and how is it used?
A driving factor in the crisis of 2008 was a decrease in the price of new housing. We can use our supply-and-demand tool to help us understand that. We use the framework to make predictions about the effects of events on economic outcomes. More precisely, economists predict the effects of exogenous events on equilibrium prices and quantities.
Toolkit: Section 16.8 "Comparative Statics"
An exogenous variable is something that comes from outside a model and is not explained in our analysis. An endogenous variable is one that is explained within our analysis. When using the supply-and-demand framework, price and quantity are endogenous variables; everything else is exogenous.
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