Assume the following simple supply and demand model: Qd = a - bP + cY + dPr Qs =

Question

Assume the following simple supply and demand model:
Qd = a - bP + cY + dPr
Qs = eP - fw   where a,b,c,d,e,f all strictly positive and Pr is the price of a related good, P is the price of the good, Y is consumer income, and w is the wage rate.
The sign of the derivative of Qd with respect Y suggests which of the following?

Select one:

a.             the related good is a substitute

b.             the related good is a complement

c.             the good in question is inferior

d.             the good in queston is normal

e.             none of the above

Explanation / Answer

Qd = a - bP + cY + dPr

the derivative of Qd with respect Y = dQd / dY = c

Quantity demanded and income are directly related as the derivative is positive. It means with increase in income, quantity demanded will increase. This happens in case of normal good.

d.             the good in queston is normal

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