ECON 102 Chapter Notes - Chapter 3: Swiss Army Knife
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Models have two component types: endogenous, and exogenous, endogenous variables are the variables expected to be represented by one model. Exogenous variables are the variables which a model takes as given. The purpose of a model is to show how the exogenous variables affect the endogenous variables. Imagine an economist becoming interested in figuring out what factors influence the price of the pizza and how much pizza is sold. He or she will be developing a model that reflects the actions of pizza consumers, pizza sellers and their contribution to the pizza market. As with other models, this business model of pizza makes assumptions easier: the model, for example, does not consider that every pizzeria is in another area. For each customer, one pizzeria is more convenient than the others and hence pizzerias have the right to set their own prices. Can we seek to construct a more complicated model that allows different pizza prices.