Markets: A Rigorous Course

M01 · Problem 1 ★

Crossing of smooth schedules

Suppose demand D(p)D(p) is continuous and strictly decreasing and supply S(p)S(p) continuous and strictly increasing on an interval, with D(p0)>S(p0)D(p_0) > S(p_0) and D(p1)<S(p1)D(p_1) < S(p_1) at its ends. Show that V(p)=min⁡{D(p),S(p)}V(p) = \min\{D(p), S(p)\} has a unique maximiser, and that it is the unique p^\hat p with D(p^)=S(p^)D(\hat p) = S(\hat p). Explain in one paragraph why the discrete auction in 1.3 needs tie-break rules that this continuous version does not.

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