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EFFICIENT: The state of resource allocation the exists when the highest level of consumer satisfaction is achieved from the available resources. Competitive markets, absent of any market failure and especially market control by either side, is efficient. In particular, this feat is accomplished when the price buyers are willing and able to pay for a good--based on the satisfaction obtained--is equal to the price sellers need to charge for a good--based on the opportunity cost of production. In other words, the value (satisfaction) of stuff given up to get a good is the same as the value (satisfaction) of the good produced. Satisfaction won't increase by producing more of either.
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                           VARIABLES: Quantities, usually represented as symbols, that can take on one of a set of values. A variable is "variable" because its value can "vary." A primary goal of economic analysis is to determine the specific value that a variable takes on under specific circumstances. Variables are allowed to vary, to take on different values. Models combine variables in a systematic manner (based on the underlying theory). The basic purpose of a model is then to identify different, specific values for the variables.For example, the two key variables in a market model are price and quantity. Analysis of the market model then identifies specific values for price and quantity. Endogenous and ExogenousIn the analysis of a model, variables generally take one of two forms -- endogenous (or dependent) and exogenous (or independent).- Endogenous: The values of endogenous or dependent variables are identified within the workings of the model. For example, price and quantity are endogenous variables for the market model. Endogenous variables are, in essence, the "output" of the model. Their identification is what the model is all about.
- Exogenous: The values of exogenous or independent variables are established outside the workings of the model. For example, income or the cost of a productive resource are common exogenous variables for the market model. Exogenous variables are the "input" of the model. They are pre-determined or "given" to the model.
InteractionThe interaction among endogenous and exogenous variables is key to the analysis of a model. Endogenous variables in a model are identified based on the pre-determined values of exogenous variables. Should these exogenous variables take on different values, then the endogenous variables also generally take on different values.For example, endogenous price and quantity variables identified in a market model are, in part, based on the exogenous variable--the income of the buyers. Should buyers have more or less income, then their demand is likely to change and so too are price and quantity.
Recommended Citation:VARIABLES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2026. [Accessed: February 9, 2026].
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