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Imagine an economy with a single market in continuous time: Here, T is a large number that represents the end of history. Suppose that

 

Imagine an economy with a single market in continuous time: Here, T is a large number that represents the end of history. Suppose that the dynamics of the price satisfy pt = a (d(pt) - 5), with a > 0, where d(p) is the demand function, and 5 > 0 is the fixed supply of the commodity. [0, T]. Interpret the differential equation given above. Suppose that there exists a unique price level p* >0 such that d(p*) = s Write down a solution for p* which would be true for any d() function? What is it that ensures the stability of the price mechanism in this model? Discuss.

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