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3. Assume that supply in year t depends on price in year t-1, S (Pt-1)= a Pt-1 and that demand function is an usual
3. Assume that supply in year t depends on price in year t-1, S (Pt-1)= a Pt-1 and that demand function is an usual one, D(P) = 1-bP. (a) (10) Obtain a first-order difference equation for p (b) (10) Find the stationary equilibrium price. (c) (10) Derive the time path of price. (d) (10) What is the condition for a stable (convergent) price path?
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a To obtain a firstorder difference equation for p we need to express the supply and demand functions in terms of price at time t rather than time t1 Supply function SPt1 aPt1 Demand function ...
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Microeconomics An Intuitive Approach with Calculus
Authors: Thomas Nechyba
1st edition
538453257, 978-0538453257
