Question

The demand for your product X has been estimated to be Qx = 7, 880 − 4Px − 2Py + Pz − 0.1M where Y and Z are other (related) products. The relevant price and income data are as follows: Px = 10, Py = 15, Pz = 50, M = 40, 000 (Please show work and answers to questions a-e)

a. Which goods are substitutes for X? Which are complements?

b. Is X an inferior or a normal good?

c. How much X will be purchased? d. Graph the demand curve for X given the above information.

e. How will the demand curve change if M falls to 35, 000? Is that in line with b.?

Answer 1

(a) adx adx . -2 TO So, y is a complement z is a substitute. oč = 1 so adx = -0.150 so, x is an inferior good. ам (C) Ox = 7880 - 4(10) - 2015) + 50 -0.1 (40,000) 7880 - 40 - 30 + 50 - 4000 =ylor = 3,8607 (d) dx = 7880 - 4px -2015) +50 - 0.16V0,000) = 7980 - 4px - 30 +50-4000 22 Oy = 3,900 - Upx when Px=0; x = 3,900 when dx = 0; Upx = 3900 Ilol 975 475 = = 3900 72 Demand curve , Dx - 0x 3900 4400 (e) M= 35,000 So, dx = 7880 - 4 px -2015 ) + so t ON (35,000) - 7880 - URY - 30 +50 - 3500 =20x2 4400 - 4Ps и , - о, о, - у чоо when dx=0; uox - 4you =) R = 4400 1100 So with decrease in income, demand increase and shifts outward to DX. Thus, it is an inferior Cs Goodinnandvith in line with b. JCamScanner