QUESTION 1 We are now going to add the price of another good and income to our d
ID: 2439289 • Letter: Q
Question
QUESTION 1 We are now going to add the price of another good and income to our demand function. If QDA 891-16 PA+14 PB+0.015 and PA $2.65 PB $4.99 1- $25,038 What will be the change in the quantity demanded of Good A (QDA) if the price of Good B (PB) changes to 5.932 (DON'T FORGET TO INCLUDE THE CORRECT SIGN, ROUND TO TWO DECIMAL PLACES) QUESTION 2 Based on your answer to the previous question, Good A and Good B are O substitutes. O complements QUESTION3 If QDA- 810-18 PA-9PB+0.019 and PA- $4.77 PB $9.8 I $21,367 What will be the change in the quantity demanded of Good A (QDA) if the price of Good B (PB) changes to 3.61? (DONT FORGET TO INCLUDE THE CORRECT SIGN ROUND TO TWO DECIMAL PLACES QUESTION 4 Click Save and Submit to save and submit Click Save All Answers to sove oll answers Save All AnssExplanation / Answer
Ans.
1) QDA = 891 - 16PA + 14PB + 0.015 I
QDA = 891 - 16(2.65) + 14 ( 4.99) + 0.015 (25,038)
QDA = 891 - 42.4 + 69.86 + 375.57
QDA = 1336.43 - 42.4 = 1294.03
If price of good B increases to 5.93 then quantity demanded for good A will be as follows
QDA = 891 - 42.4 + 14*5.93 + 375.57 = 891 - 42.4 + 83.02 + 375.57
QDA = 1349.59 - 42.4 = + 1307.19
thus, with increase in price of good B the consumption of good B also decreases whereas quantity demanded for good A increase .These are substitute goods .Substitute goods have positive cross elasticity of demand.
2) Good A and Good B are substitutes.
Substitute goods are those goods when increase in price of one good increases demand for other good because due to increase in price of good 1 there is reduction in quantity demanded for good 1 such that quantity demandd for other good will increase. Whereas complimentary goods are those which are together used in pairs.In this when price of one good increases there is reduction in quantity demanded for it such that quantity demanded for other good decreases.
3) QDA = 810 - 18PA - 9PB + 0.019 I
Q = 810 - 18 * 4.77 - 9 * 9.8 + 0.019 * 21367
Q = 810 - 85.86 - 88.2 + 405.973
Q = 1215.973 - 174.06 = 1041.913
Now if price of good B decreases to 3.61 :
Q = 810 - 85.86 - 9 * 3.61 + 405.973
Q = 810 - 85.86 - 32.49 + 405.973
Q = 1215.973 - 118.359 = - 1097.614
Thus,with decrease in price of good B there is quantity demanded increase for good B such that there is increase in quantity demanded for good A.These goods are complimentary goods having negative cross elasticity of demand.
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