Correlation between supply and demand function

Reference no: EM1313158

Consider a product with a supply function Q₁ = β₀ + β₁ + u_1,a demand function Q^d_i=y₀+u_i^d. and a ,market equilibrium condition Q^s_i= Q^d_i,where u_i^sand u_i^d are mutually independent i.i.d. random variables, both with a mean of zero.

a. Show that P_i and u^s_dare correlated.

b. Show that the OLS estimator of β₀, β₁ and γ₀?

Reference no: EM1313158

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