Simultaneous Equation System

Definition: By "system" is meant that there are multiple, related, estimable equations. By simultaneous is meant that two quantities are jointly determined at time t by one another's values at time t-1 and possibly at t also. Here's a simultaneous equation system example, from Greene, (1993, p. 579), of market equilibrium:

q_d=a₁p+a₂+e_d (Demand equation)

q_s=b₁p+e_s (Supply equation)

q_d=q_s=q

Here the quantity supplied is q_s, quantity demanded is q_d, price is p, the e's are errors or residuals, and the a's and b's are parameters to be estimated. We have data on p and q, and the quantities supplied and demanded are conjectural.

(Econterms)

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