Consider the markets for coffee, tea and sugar. These goods are related in demand since the first two are often substitutes for each other while the third is often complementary with each of the other two goods. Ignoring any supply side links (which are, in any case, unlikely), we have as an example: Tea Dt=200−10pt+6pc−2psSt=4pt−20 Coffee Dc=240−16pc+4pt−4psSc=10pt−40 Sugar Ds=600−20pt−10pc−2psSs=30ps (a) Write down the Equilibrium Condition for each market (b) Create a system of linear equation that reflects equilibrium in each of the three markets. (c) Write down the equivalent matrix form of the system. (d) Use EROs to find the equilibrium prices pc,pt and ps.
