Consider the following two fabricated models of the world (competitive) market for wheat: I. QD=2,000+.05 Population −2p QS=−10−2( Temperature )+2p Population =7500 Temperature =57.5 QD=QS II. II. QD=2,000+.05 Population −2p QS=−10−2( Temperature )+2p Population =7500 Temperature =57.5+.01(Q−1,125) QD=QS
A. Is population an exogenous or endogenous variable in the two equations above? Why?
B. In which of the above equations is temperature an endogenous variable? Why?
C. If there is an exogenous increase in world population by 1 unit on the price of wheat. Which of the above equations suggests a greater change in the equilibrium price of wheat? Why? (No calculations or graphs needed)