Which of the following constitute a reduced form solution of a model? NOTE: A re

Question

Which of the following constitute a reduced form solution of a model?
NOTE: A reduced form solution is an equation in which an endogenous variable is expressed as a function of the exogenous variables.

Select one:

a. a) an equilibrium price as a function of the wage rate and consumer income –both given- in a supply and demand model where demand is a function of price and consumer income and supply is function of price and the wage rate

b. the optimal quantity of a good consumed expressed as a function of given consumer income and given prices of goods consumed by the consumer in a model of consumer demand where the consumer maximizes a utility function subject to a budget constraint

c. both a. and b. are correct

d. neither a. or b. are correct

Explanation / Answer

The correct answer is option (C).

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