4. Price dynamics 4. Price dynamics Suppose that a sandwich vendor opens a stand on the drag and faces the following supply and demand relationship:
Dt
=
24 - 3Pt
St
=
3Pt
(1)
Given the initial price P(1) = $7, and the adjustment equation:
Pt+1 = Pt - 1
6
 (St-Dt)
(2)

 

 

a. Make the system iterate and summarize the results for periods 1,2,3
t P(t)S(t)D(t)DP(t)
1 7 21 3 3
2 4 12 12 0
3 4 12 12 0

b. Find the dynamic equilibrium price and quantity.
Period 2 is the equilibrium solution.
c. Now suppose in equation 5 the constant instead of (1/6) was (1/3). what happens how?  

File translated from TEX by TTH, version 2.25.
On 23 Jan 2000, 19:33.