As a manager of a firm, you have estimated that the demand for the product the f

Question

As a manager of a firm, you have estimated that the demand for the product the firm sells is $Q D    = 1,800 – 5 P – 0.25 I, where P is the price of a unit of the firm's product and I is the average consumer income of the firm's customers. Currently, P = $80 and  I = $4,000.   Based on this information, then if the economy enters a recession and consumers' incomes decrease

A)The demand curve for the firm's product will shift to the left

The quantity demanded of the firm's product at P = $80 will increase.

C)The income elasticity of demand will stay the same.

None of the above

A)The demand curve for the firm's product will shift to the left

The quantity demanded of the firm's product at P = $80 will increase.

C)The income elasticity of demand will stay the same.

None of the above

Explanation / Answer

Answer is B. The quantity demanded of the firms product at P= $80 will increase.

Explanation:

The relation between the income and demand of firms product is negative. hence with the fall in income the demand of the goods will increase and the demand curve will shift to the right.

This will result in more goods being demanded at the same price of $80.

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