Your Textbook Gives the Following Example of Simultaneous Causality Bias $y _ { 0 }$

question 9

Essay

Your textbook gives the following example of simultaneous causality bias of a two equation system:
Y_i = β₀ + β₁X_i + u_i
X_i = $y _ { 0 }$ + $y _ { 1 }$ Y_i + v_i
In microeconomics, you studied the demand and supply of goods in a single market. Let the demand ( $Q _ { i } ^ { D }$ )and supply ( $Q _ { i } ^ { S }$ )for the i-th good be determined as follows, $Q _ { i } ^ { D }$ = β₀ - β₁P_i + u_i, $Q _ { i } ^ { S }$ = $y _ { 0 }$ - $y _ { 1 }$ P_i + v_i,
where P is the price of the good. In addition, you typically assume that the market clears.
Explain how the simultaneous causality bias applies in this situation. The textbook explained a positive correlation between X_i and u_i for $y _ { 1 }$ > 0 through an argument that started from "imagine that u_i is negative." Repeat this exercise here.

---

Definitions:

Mental Illness

A range of mental health conditions that affect mood, thinking, and behavior.

Emotional Energy

The capacity to manage and utilize one's emotions effectively to energize, guide, and maintain one's actions and behaviors.

Mobilize Energy

The process of activating or rallying resources and energy towards accomplishing a specific goal or task.

Restoration Processes

Procedures aimed at returning something to its original condition or better, often used in environmental, art conservation, and medical contexts.