Your textbook gives the following example of simultaneous causality bias of a two equation system: Y=B + B,X, +u, X=Y+YY +v In microeconomics, you
Your textbook gives the following example of simultaneous causality bias of a two equation system: Y=B + B,X, +u, X=Y+YY +v In microeconomics, you studied the demand and supply of goods in a single market. Let the demand (Q) and supply (Q) for the i-th good be determined as follows, Q=B-BP+u,, Q =Y+YP+v, where P is the price of the good. In addition, you typically assume that the market clears. The textbook explained a positive correlation between X, and u, for 7,0 through an argument that started from "imagine that u, is negative." Repeat this exercise here and show that there is a positive correlation between X, and " 7> 0. (3 points) for
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