Good insights. The inside/outside assignment becomes especially important when we have have multiple processes which equilibrate at different timescales—e.g. a commodity price may have both a short-term equilibrium (which just balances near-term supply and demand) and a long-term equilibrium (in which new buyers/sellers start businesses/shut down businesses in response to prices). In that situation, we explicitly declare the long-term changes to be “outside” (aka “exogenous”) when analyzing the short-term equilibrium.
Good insights. The inside/outside assignment becomes especially important when we have have multiple processes which equilibrate at different timescales—e.g. a commodity price may have both a short-term equilibrium (which just balances near-term supply and demand) and a long-term equilibrium (in which new buyers/sellers start businesses/shut down businesses in response to prices). In that situation, we explicitly declare the long-term changes to be “outside” (aka “exogenous”) when analyzing the short-term equilibrium.