There are 3 types of equations: definitional, behavioral, and conditional.
Definitional Equation: Sets up an identity between two alternate expressions that have exactly the same meaning. For such an equation, the identical-equality ≡ . As an example, total profit is defined as the excess of total revenue over total cost; we can can therefor write:
Behavioral Equation: Specifies the manner in which a variable behaves in response to changes in other variables. This may involve either human behavior (such as aggregate consumption pattern in relation to national income) or nonhuman behavior (such as how total cost of a firm reacts to output changes). Before a behavioral equation can be written, however, it is always necessary to adopt definite assumption regarding the behavior of the variable in question.
Conditional Equation: States a requirement to be satisfied. For example, in a model involving the notion of equilibrium, we must set up an equilibrium condition, which describes the prerequisite for the attainment of equilibrium. Two of the most familiar equilibrium conditions in economics are:
[quantity demanded = quantity supplied]
and S = I [Intended saving = Intended investment]
Definitional Equation: Sets up an identity between two alternate expressions that have exactly the same meaning. For such an equation, the identical-equality ≡ . As an example, total profit is defined as the excess of total revenue over total cost; we can can therefor write:
π ≡ R - C
Behavioral Equation: Specifies the manner in which a variable behaves in response to changes in other variables. This may involve either human behavior (such as aggregate consumption pattern in relation to national income) or nonhuman behavior (such as how total cost of a firm reacts to output changes). Before a behavioral equation can be written, however, it is always necessary to adopt definite assumption regarding the behavior of the variable in question.
Conditional Equation: States a requirement to be satisfied. For example, in a model involving the notion of equilibrium, we must set up an equilibrium condition, which describes the prerequisite for the attainment of equilibrium. Two of the most familiar equilibrium conditions in economics are:
and S = I [Intended saving = Intended investment]
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