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Rewrite the equilibrium condition

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Now, that we introduced implicit functions and differentiation of functions with more than one independent variable, we can specify the demand and supply functions even more generally. Let Qd = D(P,M),QS = S(P,w) where Qd is quantity demanded, QS is quantity supplied, P is price, M is consumer's income, and w is wage rate. We assume the equilibrium condition holds: P∗ : D(P∗,M) = Qd = QS = S(P∗,w)

(a) Rewrite the equilibrium condition as the implicit function F(P,w,M) = 0.

(b) Identify all (i)exogenous parameters and (ii) endogenous variables in this model.

(c) Totally differentiate the equilibrium condition w.r.t. all exogenous parameters.

(d) Solve for ∂P∗/∂M and ∂P∗/∂w and interpret your results.

(e) Find comparative statics results for ∂Q∗/∂M and ∂Q∗/∂w and interpret

Reference no: EM132414955

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