Let's see how the demand curve, combined with the Hotelling rule, can define the market equilibrium....
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Let's see how the demand curve, combined with the Hotelling rule, can define the market equilibrium. There are two periods, now and later. The demand curve in each period (= now or later) is Q = 10 - P.. The stock of the resource is 10 units, with zero extraction costs. The interest rate is 4 percent. (a) A market equilibrium requires identifying price and quantity at all times. What are the four variables for which we need to find numerical values to find the equilibria? (b) To find four unknowns, we need four equations. These equations are (i) the two demand curves, (ii) the Hotelling price path, and (iii) a summing-up condition that says that the quantity used in both periods sums to the stock. Please write down these four equations. (c) Please solve the four equations by substitution. Hint: First, use the summing-up condition to eliminate Qw from the demand curve; second, use the Hotelling price path to eliminate P from the Q demand curve; finally, use the now-modified Qow demand curve with the Later demand curve to solve for Pian Once you've solved for Pater, use the previous relationships to solve for all the NOW other variables. (d) Does price rise with the interest rate? Does quantity demanded increase or decrease between the two periods? Does the producer make profit? How much? Let's see how the demand curve, combined with the Hotelling rule, can define the market equilibrium. There are two periods, now and later. The demand curve in each period (= now or later) is Q = 10 - P.. The stock of the resource is 10 units, with zero extraction costs. The interest rate is 4 percent. (a) A market equilibrium requires identifying price and quantity at all times. What are the four variables for which we need to find numerical values to find the equilibria? (b) To find four unknowns, we need four equations. These equations are (i) the two demand curves, (ii) the Hotelling price path, and (iii) a summing-up condition that says that the quantity used in both periods sums to the stock. Please write down these four equations. (c) Please solve the four equations by substitution. Hint: First, use the summing-up condition to eliminate Qw from the demand curve; second, use the Hotelling price path to eliminate P from the Q demand curve; finally, use the now-modified Qow demand curve with the Later demand curve to solve for Pian Once you've solved for Pater, use the previous relationships to solve for all the NOW other variables. (d) Does price rise with the interest rate? Does quantity demanded increase or decrease between the two periods? Does the producer make profit? How much?
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Answer rating: 100% (QA)
a The four variables we need to find numerical values to find the equilibria are now period price Pnow now period quantity Qnow later period price Pla... View the full answer
Related Book For
The Economics of the Environment
ISBN: 9780321321664
1st edition
Authors: Peter Berck, Gloria Helfand
Posted Date:
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