- The number of goals Ronaldo scores in a season
- Amount of rainfall your city gets in a month
- Number of cars sold in your country every year
- Number of hours you sleep in a day
What is common among all of the above? The value of all of the above changes. That is, it varies, or is variable. Thats is what all of them are – variables. Anything that has a value that is subject to change or variation is a variable. The values can be in a certain range for example it is unrealistic to expect Ronaldo to score 1000 goals in a season. Or you cannot sleep 24 hours in a day (won’t you love to?!).
But in studying anything we like to generalize. If someone follows Ronaldo closely, he would give a name or a symbol to the number of goals CR7 scores. The name would be “Number of goals Ronaldo scores in a season” but that would be pretty long to repeat every time. Thus for simplicity’s sake, he would call it “G”.
In economics, the variables commonly used are Price (P), Quantity (Q), Cost (C), Investment (I) etc. Their values keep on changing and in the study of economics, various scenarios of their change are studied closely.
Endogenous and Exogenous Variables.
Usually in an economic model, we have somethings as given and somethings whose value we wish to arrive at by solving the model. Variables that are given or are determined by forces external to the model are known as Exogenous Variables. The other set of variables whose value is arrived at by solving the model are known as Endogenous Variables.
For example, if we want to know the equilibrium price and quantity of a product, we use a demand equation and a supply equation which will contain price and quantity variables. Thus Price (P) and Quantity (Q) will be endogenous variables as ultimately, these are the variables whose value we want to calculate. There will be variables whose values will be assumed such as income (Y) or price of other related products. These will be exogenous variables.
An interesting thing to note is that a variable can e endogenous for one model and exogenous for another. For example, in another model, price may be assumed and therefore exogenous.
- Number of players in a football team
- Number of hours in a day
What is common among the above? The value remains the same i.e. constant. Thus if we count the number of hours each day and name it “number of hours each day”, again it will be easier to give it a symbol “H”. Thus, H will be a constant.
When a constant is attached to a variable, it becomes a parameter. Lets say 10P, where 10 is a parameter or a coefficient. Since, its own value can change, it is a variable in spite of being a parameter.