Explain necessary conditions for positive equilibrium prices

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Reference no: EM13176534

Given the following supply and demand model:

Qd = a - bP + eYo Demand

Qs = -c + dP + fPr Supply

Qd = Qs Equilibrium

where: a, b, c, d, e > 0 ,Yo is exogenous income, Pr is the exogenous price of a related good.

(a) What are the necessary conditions for positive equilibrium prices and quantities?

(b) What is the economic interpretation of the parameter "f"?

Reference no: EM13176534

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