Question

List three exogenous variables for the demand of laptops and three exogenous variables for the supply of laptops. What are the endogenous variables in the supply and demand model for laptops?

Answer 1

An endogenous variable is a variable that is influenced by other factors in a model, while exogenous variables are not influenced by any factor in the model. Therefore,

(A) Three exogenous variables for demand of laptops are:

- Consumer preferences (e.g. a preference favoring (against) laptops will increase (decrease) its demand)

- Consumer income (e.g. higher (lower) consumer income will increase (decrease) the demand for laptops, assuming it is normal good)

- Price of a related good (e.g. higher (lower) price of iPad, a near-substitute for laptop, will increase (decrease) the demand for laptop).

(B) Three exogenous variables for supply of laptops are:

- Price of inputs (e.g. higher (lower) price of processor will decrease (increase) supply of laptops)

- Availability of factors of production (e.g. higher (lower) supply of labor will decrease (increase) the wage rate, lowering (raising) production cost, therefore increasing (decreasing) supply of laptops)

- Business climate (e.g. Favorable (unfavorable) tax treatment will lower (raise) overall cost of production, increasing (decreasing) supply of laptops)

(C) Endogenous variables in the demand and supply model are: Price and quantity.