2) The demand function for a good is ?? = ?(?, ?, ?) = ? −...

2) The demand function for a good is ?? = ?(?, ?, ?) = ? − ?? and its supply function is ?? = ?(?, ?, ?) = ? + ??, where a, b, c, and e are positive constants. (Keep in mind that sometimes we call a, 2 b, c, and e “parameters” and that they are “exogenous” variables. In contrast, p and Q are “endogenous” variables.) a) Solve for the equilibrium price ? ∗ = ? ∗ (?, ?, ?, ?) and quantity ? ∗ = ? ∗ (?, ?, ?, ?). b) Using calculus, compute the effect of an increase in parameter a on ? ∗ and ? ∗ . Draw ?? and ?? and illustrate the just noted effects graphically.

I was able to solve part A. I got: P* = [(a-c)/(b+e)] and Q* = a - b[(a-c)/(b+e)]. I am just unsure about part B.

Thank you,

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Expert Solution

Rahul Sunny answered 2 weeks ago

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