2. An economist is interested in the variation of the price of a single product. It is observed that a high price for the product in the market attracts more suppliers. However, increasing the quantity of the product supplied tends to drive the price down. Over time, there is an interaction between the price and supply. The economist has proposed the following mode, where Pn represents the price of the product at year n, and Qn the quantity: [Pn+1 = Pn -0.1 (Qn - 500) [n+1 = 2n +0.2 (Pn - 100) (a) Explain the significance of the constants 500 and 100 in the proposed equation. (b) Explain the significance of the signs of the constants -0.1 and 0.2. (c) Simulate the system using the following initial conditions (plot the trajectories) and predict the long term behavior of the dynamical system. • Po= 100 and Qo = 500 • Po= 200 and Qo = 500 Po 100 and Qo= 600 90 and Qo = 400 Po =

2. An economist is interested in the variation of the price of a single product. It is observed that a high price for the product in the market attracts more suppliers. However, increasing the quantity of the product supplied tends to drive the price down. Over time, there is an interaction between the price and supply. The economist has proposed the following mode, where Pn represents the price of the product at year n, and Qn the quantity: [Pn+1 = Pn -0.1 (Qn - 500) [n+1 = 2n +0.2 (Pn - 100) (a) Explain the significance of the constants 500 and 100 in the proposed equation. (b) Explain the significance of the signs of the constants -0.1 and 0.2. (c) Simulate the system using the following initial conditions (plot the trajectories) and predict the long term behavior of the dynamical system. • Po= 100 and Qo = 500 • Po= 200 and Qo = 500 Po 100 and Qo= 600 90 and Qo = 400 Po =

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2.
An economist is interested in the variation of the price of a single product. It is observed that
a high price for the product in the market attracts more suppliers. However, increasing the quantity of the
product supplied tends to drive the price down. Over time, there is an interaction between the price and
supply. The economist has proposed the following mode, where Pn represents the price of the product at
year n, and Qn the quantity:
(a) Explain the significance of the constants 500 and 100 in the proposed equation.
(b) Explain the significance of the signs of the constants -0.1 and 0.2.
(c) Simulate the system using the following initial conditions (plot the trajectories) and predict the long
term behavior of the dynamical system.
Po 100 and Qo= 500
• Po= 200 and Qo = 500
●
Po 100 and Qo = 600
Po
90 and Qo = 400
[Pn+1 = Pn -0.1 (Qn - 500)
[Qn+1
=Qn +0.2 (Pn - 100)
●

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