ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Its net income depends on a variety of factors, including tax rate. Because other variables can ‘t impact the tax rate in the model, the tax rate is an exogenous variable.

Detailed explanation-2: -One possible exogenous variable is the income tax rate. The income tax rate is set by the government, and if you are not interested in explaining government behavior, you would take the tax rate as exogenous.

Detailed explanation-3: -An exogenous variable is a variable that is not affected by other variables in the system. For example, take a simple causal system like farming. Variables like weather, farmer skill, pests, and availability of seed are all exogenous to crop production.

Detailed explanation-4: -Exogenous variables have no direct or formulaic relationship. For example, personal income and color preference, rainfall and gas prices, education obtained and favorite flower would all be considered exogenous factors.

Detailed explanation-5: -Thus, market price would be an endogenous variable in this model. The presence of endogenous variables as explanatory variables in our economic models creates significant difficulties for estimating our model.