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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"?
(c) What will be effect (increase or decrease) of an increase in exogenous income on P*, the equilibrium price?
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