Consider the following economic model: Let \(P\) be the price of a single item
on the market. Let \(Q\) be the quantity of the item available on the market.
Both \(P\) and \(Q\) are functions of time. If we consider price and quantity as
two interacting species, the following model might be proposed:
$$
\begin{aligned}
&\frac{d P}{d t}=a P(b / Q-P) \\
&\frac{d Q}{d t}=c Q(f P-Q)
\end{aligned}
$$
where \(a, b, c\), and \(f\) are positive constants. Justify and discuss the
adequacy of the model.
a. If \(a=1, b=20,000, c=1\), and \(f=30\), find the equilibrium points of this
system. Classify each equilibrium point with respect to its stability, if
possible. If a point cannot be readily classified, explain why.
b. Perform a graphical stability analysis to determine what will happen to the
levels of \(P\) and \(Q\) as time increases.
c. Give an economic interpretation of the curves that determine the
equilibrium points.