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Endogenous Variable

Endogenous Variable

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What Is an Endogenous Variable?

An endogenous variable is a variable in an economic model that is determined or changed by other variables within the same model. In other words, the values of endogenous variables depend on their relationship and interactions with other variables within the model.

How Do Endogenous Variables Work?

Consider a simple supply and demand model in economics. The endogenous variables are the price of goods and the quantity sold. In this model, the price is influenced by the demand for the goods and the available supply. The price will rise if the demand increases while the supply remains constant. Conversely, the price will fall if the supply increases and demand remains unchanged.

Let’s take a look at a model of a firm's production and sales. The endogenous variables include the firm's output level, sales revenue, and profit. They are influenced by various internal factors, such as the firm's production capacity, cost of inputs, and pricing strategy. For instance, if a firm decides to invest in new technology to increase production capacity, the output level and profit are likely to change.

Endogenous Variables in Crypto

In the cryptocurrency market, one key endogenous variable is the price of a cryptocurrency. It is influenced by various factors, such as trading volume, investor sentiment, and market demand. For instance, a surge in market demand can lead to an increase in price, as more investors are interested in buying crypto.
Another example is the hash rate. It shows the computational power that is used to mine new blocks. The hash rate is influenced by the number of miners participating in the network and the difficulty of the mining process.

Conclusion

Endogenous variables are components of economic models that are determined by the internal interactions between variables within them. Examples of endogenous variables include the price and quantity of a good. In the context of crypto, endogenous variables include the price of a cryptocurrency and the hash rate.