Question

Question Three ( 15 Marks ) The market demand for brand X has been estimated as Qx = 1,500 - 3x - 0.051 - 2.5Py + 7.5Pz where Px is the price of brand X, I is per-capita income, Py is the price of brand Y, and Pz is the price of brand Z. Assume that Px = $2, 1 = $20,000, Py = $4, and Pz = $4. a. With respect to changes in per-capita income, what kind of good is brand X? b. How are brands X and Y related? c. How are brands X and Z related? d. How are brands Z and Y related? e. What is the market demand for brand X?

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Abdul-Rahim Taysir

Answer 1

A.  

If per capita income is	Qx will be
10000	1014
20000	514
30000	14
40000	-486

We determined the demand for product x at various per-capita income and found that with increase in per-capita income,the demand for product decreases which implies that the product is an inferior goods as people prefer to not use the product when their income rises.

B.

Py	Demand for x
1	1021.5
2	1019
4	1014
6	1009
8	1004
10	999

When the price of product Y increases, the demand for product x decreases. This signifies that X and Y are complementary goods to each other.

C.

Pz	Demand for x
1	991.5
2	999
4	1014
6	1029
8	1044
10	1059

When the price of product Z increases, the demand for product X increases. This signifies that X and Z are substitutes goods to each other.

D. Product Z and Y are linked to a single product as a substitute and complementary to Product X respectively. Following this, Product Y is also complimentary to Product Z.

E. Market Demand for product X as per given data:
= 1500-6-(0.05*10000)-(2.5*4)+(7.5*4)
=1,014