Consider example (A.1) in the Appendix. Recall, that system of equations (A.3) and (A.4) are just-identified. (a) Construct for the demand equation (A.3) and

Consider example (A.1) in the Appendix. Recall, that system of equations (A.3) and (A.4) are just-identified.

(a) Construct φ for the demand equation (A.3) and show that Aφ = (0,−f) which is of rank 1 as long as f = 0. Similarly, construct φ for the supply equation (A.4) and show that Aφ = (−c, 0) which is of rank 1 as long as c = 0.

(b) Using equation (A.17), show how the structural parameters can be retrieved from the reduced form parameters. Derive the reduced form equations for this system and verify the above relationships relating the reduced form and structural form parameters.