Question: Given the model qd t = a bpt b > 0 qs t = c + dpe t d > 0 pe t =

Given the model qd t = a − bpt b > 0 qs t = c + dpe t d > 0 pe t = pe t−1 − λ(pt−1 − pe t−1) 0 <λ< 1

(i) Show that price conforms to a first-order nonhomogeneous difference equation.

(ii) Obtain the equilibrium price and quantity.

(iii) Show that for a stable cobweb then 0 <λ<

2b b + d

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