Why is this a simultaneous-equations model

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Reference no: EM13896237

The following two structural equations represent a simple demand-supply model:

Demand: Qt ¼ a0 þ a1Pt þ a2Yt þu1t	a1 0 and	a2 > 0
Supply: Qt ¼ b0 þ b1Pt þ u2t	b1 > 0

where Q is quantity, P is price, and Y is consumers' income. It is assumed that the market is cleared in every year so that Qt represents both quantity bought and sold in year t.

(a) Why is this a simultaneous-equations model?

(b) Which are the endogenous and exogenous variables of the system?

Reference no: EM13896237

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