2. Assume supply and demand are defined as follows and that all the A and B valu
ID: 1137069 • Letter: 2
Question
2. Assume supply and demand are defined as follows and that all the A and B values are defined as in class: Qs -BSP-As A. (1 Point) Assume supply and demand both increase. Without any further information about the changes to the A and B values in the problem, economists would typically say that the equilibrium is indeterminate. Circle one to ill n the blank. PRICE QUANTITY B. (2 Points) State the equilibrium price and quantity as functions of the given exogenous (or independent) information in the system.Explanation / Answer
(a) Without any further information about the changes to the A and B values in the problem, economists would typically say that the equilibrium price would is indetermminate.
(b) Qd= Ad -BdP
Qs= BsP - As
At equilibrium Qd= Qs
Ad- BdP= BsP- As
Ad+ As= BsP+ BdP
Ad +As = P(Bs + Bd)
P= (Ad + As)/ (Bs+Bd) [Equilibrium price]
Q= Ad - Bd[(Ad+As)/ (Bs+Bd)] [Equilibrium quantity]
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