Question
First Order Linear Differential Equation problem The demand and supply functions of shoes are as follows: Qd = a bP Qs = c + dP
First Order Linear Differential Equation problem
The demand and supply functions of shoes are as follows:
Qd = a bP
Qs = c + dP
where a = 50, b = 1, c = 20, and d = 2. There is a possibility that the initial price P(0) does
not equal to long-term equilibrium price P* which is attainable in the long term-due to process
of time. In other words, all variables can change overtime or be functions of time (t). Based on
the information, answer the following questions
a. Find the market long-term equilibrium price P*!
b. Given sufficient time for the adjustment process to work, what is the price time path P(t)
by assuming that the rate of price change with respect to time (dP/dt), at any moment is
directly proportional to excess demand (Qd-Qs)? (hint: use nonhomogeneous first
order linear differential equation to find the complete solution P(t) that consists of
complementary function (Pc) and particular integral (Pp)!
c. Based on your solution in part b, will the price path over time P(t) converge to long-term
equilibrium price P* as t given current price is P(0) = 8? Use the qualitative
diagram to support your answer!
d. Give economic interpretation of complementary function (Pc) and particular integral (Pp)
in attaining the long-term equilibrium price P*!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started