Identification and simultaneous equations

In a market, observed price-quantity points come from both demand and supply shifting, so a single regression of quantity on price mixes the two curves together — it estimates neither. Identification is the problem of finding conditions under which each structural equation can be recovered separately. The order condition gives a quick check: an equation is identified if the number of excluded exogenous variables is at least the number of endogenous variables on its right-hand side minus one. Worked example: in a two-equation demand-supply system, if supply excludes income (a demand shifter) and demand excludes weather (a supply shifter), each equation has one excluded exogenous variable and one right-hand-side endogenous variable, so both are exactly identified.