The demand for good X is given by Q X d = 6,000 - (1/2)P X - P Y + 9P Z + (1/10)

Question

The demand for good X is given by

QXd = 6,000 - (1/2)PX - PY + 9PZ + (1/10)M

Research shows that the prices of related goods are given by Py = $6,500 and Pz = $100, while the average income of individuals consuming this product is M = $70,000.

a. Indicate whether goods Y and Z are substitutes or complements for good X.

Good Y is: (Click to select)a substituteneither complement nor substitutea complement

Good Z is: (Click to select)a substituteneither complement nor substitutea complement

b. Is X an inferior or a normal good?

Good X is: (Click to select)an inferior gooda normal goodneither a normal nor an inferior good

c. How many units of good X will be purchased when Px = $5,230?



d. Determine the demand function and inverse demand function for good X. Graph the demand curve for good X.

Demand function: - PX

Inverse demand function: PX = - QXd

Explanation / Answer

a. Y is a complement for X

Z is a substitute for X

b. normal good

c. 4785

d. Demand function : QXd = 6000 - (1/2)Px - Py + 9Pz + (1/10)M

= 6000 - (1/2)Px - 6500 + 900 + 7000 => QXd = 7400 - (1/2)Px

Inverse demand function : Px = 14800 - 2QXd

Graph: http://i.imgur.com/jzCRdfZ.png

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