Homework Answers
(a) Plugging in given values,
QD = 17 - 2Pc + 10 x 1 = 17 - 2Pc + 10 = 27 - 2Pc
QS = 2 + 3Pc - 5 x 0.5 = 2 + 3Pc - 2.5 = 3Pc - 0.5
In equilibrium, QD = QS.
27 - 2Pc = 3Pc - 0.5
5Pc = 27.5
Pc = $5.5
Q = (3 x 5.5) - 0.5 = 16.5 - 0.5 = 16
(b) Endogenous variables are those variables which depend on other variables in the system. Here, price of coffee (Pc) and quantity of coffee (Qc) are the endogenous variables.
(c) Exogenous variables are those variables which does not depend on other variables in the system. Here, price of tea (PT) and price of electricity (PE) are the exogenous variables.
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