Consider a competitive market where the demand and the supply depend on the current price of the good. Then fitting a line through the quantity-price outcomes will
A)give you an estimate of the demand curve.
B)estimate neither a demand curve nor a supply curve.
C)enable you to calculate the price elasticity of supply.
D)give you the exogenous part of the demand in the first stage of TSLS.

Question

Quizplus · Accepted Answer

Fitting a line through the quantity-price outcomes in a competitive market where both demand and supply depend on the current price will not isolate the effects of either curve. Instead, it captures the equilibrium outcomes where supply equals demand, not the individual demand or supply curve.

Consider a Competitive Market Where the Demand and the Supply