Reduced Form - Reduced Form

Reduced Form

To find the reduced form, one must solve the equations for the endogenous variables. This reduces the system considerably. For instance, we know that the two right-hand sides of the equations are the same (both equal to Q), and hence . This can be written as, or . Thus, P is in fact a fixed number, independent of Q. Below, this number is called, while the similar number for Q is :

The structure of supply and demand has disappeared. The two coefficients are the reduced form coefficients. They are easily identified from data on Q and P. (However, the four structural form coefficients above can not be identified from data: the parameter identification problem.)

It is easily verified that:

Read more about this topic:  Reduced Form

Famous quotes containing the words reduced and/or form:

    Realism, whether it be socialist or not, falls short of reality. It shrinks it, attenuates it, falsifies it; it does not take into account our basic truths and our fundamental obsessions: love, death, astonishment. It presents man in a reduced and estranged perspective. Truth is in our dreams, in the imagination.
    Eugène Ionesco (b. 1912)

    I doubt that I would have taken so many leaps in my own writing or been as clear about my feminist and political commitments if I had not been anointed as early as I was. Some major form of recognition seems to have to mark a woman’s career for her to be able to go out on a limb without having her credentials questioned.
    Ruth Behar (b. 1956)