In Irving Fisher's hydraulic model, equilibrium is achieved when the apparatus is at rest, representing a state of balanced economic forces and constant prices. The final position of a partition in each cistern indicates the equilibrium price. Within this framework, these prices are the endogenous variables, as their values are determined by the model's internal workings. Fisher utilized the model to demonstrate how equilibrium prices are affected by changes in exogenous variables, such as the supply of a particular good.

Equilibrium and Variables in Irving Fisher's Physical Model

An endogenous variable is a factor whose value is determined by the internal mechanics and relationships within an economic model. In essence, its value is generated by the model itself as a result of the model's assumptions and structure.

Google

An economic model provides a simplified framework for understanding the economy or a specific part of it. By abstracting away from less critical details, models help to clarify the core relationships and mechanisms driving economic outcomes.

Definition of an Economic Model

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Malthusianism is a theory based on a simple economic model proposed by Thomas Malthus. This model establishes a feedback loop where agricultural output and living standards are determined by the working population, and these living standards in turn influence population growth. Based on this model, Malthus argued that any long-term, sustained increase in income per person was impossible, creating a 'poverty trap.' Although historical developments, particularly the Industrial Revolution, proved this ultimate conclusion to be incorrect, Malthus's analysis remains crucial for understanding the prolonged period of economic stagnation and low living standards that preceded his era.

Malthusianism

Endogenous Variable in an Economic Model

An exogenous variable is a factor whose value is determined outside of an economic model and is set by the person using the model. Economists manipulate these variables to conduct experiments and observe the effects on the model's endogenous outcomes.

Exogenous Variable in an Economic Model

Mathematics serves as a fundamental language in economics, enabling precise communication of complex ideas. Economic models frequently utilize mathematical tools, such as equations and graphs, to formalize their concepts and analyze economic phenomena. When paired with clear descriptions and standard definitions, this mathematical approach ensures that economic statements are conveyed with accuracy and clarity.

Learn Before

Related

Learn After