13.3 The following equations describe a simple cobweb model of a competitive market: Demand: Supply: Q =

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13.3 The following equations describe a simple "cobweb" model of a competitive market: Demand: Supply: Q = b + bP-1 d <0 When the market is in equilibrium, Q-Q. Now suppose that the market is temporarily out of equilibrium, ie., that QQ temporarily.

(a) Show that the price will converge stably to an equilibrium value if byla <1.

(b) Show that the path to equilibrium will be oscillatory if by > 0 and will not be oscillatory if by < 0.

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Econometric Models And Economic Forecasts

ISBN: 9780079132925

4th Edition

Authors: Robert Pindyck, Daniel Rubinfeld

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