Question

(d) Solve for p and q in terms of a, b, c, d given q-ap+b and q cp+d (e) If in the previous problem p stood for price, under what circumstances would the market clearing price (i.e. the p you solved for) be positive? (What are the restrictions on a, b, c,d that would ensure that p is positive?

Answer 1

d.) q_1 = ap + b, & q_2 = cp + d, thus q_1 = q_2 ap + b = cp + d. p(a - c) = d o b sp p = d - b/a - c, e.) Now It p has to be + ve, then d - b > 0 & a - c > 0. either d > b & a > c. or d - b < 0, a - c < 0. or d < b, & a < c.