is, the elasticity of supply with respect to p, esp, is non-negative:
xs = xs (p) ; eS = PXpx≥ ≥ 0.
p xs p
(5)
For simplicity, we shall assume throughout that the plan-track quantity is no
greater than the profit-maximizing supply at the plan-track price:7
x ≤ xs (p) .
The plan-track price for suppliers is assumed equal to the plan-track price for
consumers. Thus, compared to the market economy, the DTP system operates as
a tax on suppliers, transferring to consumers a portion of profit. If we denote the
profit function corresponding to (5) as π(p), then total profit under DTP is
Π = π(p) — (p — p)x.
2.2 The CPI
In this section we explore how changes in plan-track parameters affect the weighted
average P of the plan-track and market prices for the representative DTP good
7Given that x > 0, this implies that variable costs are covered at the plan-track price.
10
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