Question

In: Economics

This question has parts a, b and c below. The demand for product X has been...

This question has parts a, b and c below.

The demand for product X has been estimated to be:

Qx^D = 30,000 - 4P_x - 6P_y + 8P_z - 0.0001Income

a) X and Y are complements

True or False and Explain. 3marks.

b) X and Z are substitutes.

True or False and Explain. 3 marks.

c) X is a normal good.

True or False and Explain. 3 marks.

Expert Solution

QxD = 30,000 - 4Px - 6Py + 8Pz - 0.0001Income

(a) The coefficient of variable Py is negative (i.e., -6). It means increase in price of Y will decrease the demand for X (i.e., QxD), decrease in price of Y will increase the demand for X (i.e., QxD)

It implies the X and Y are complements goods.

Answer: TRUE

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(b) The coefficient of variable Pz is positive (i.e., 8). It means increase in price of Z will increase the demand for X (i.e., QxD), decrease in price of Z will decrease the demand for X (i.e., QxD)

It implies the X and Z are substitute.

Answer: TRUE

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(c) The coefficient of variable Income is negative (i.e., - 0.0001). It means increase in Income will decrease the demand for X (i.e., QxD), decrease in Income will increase the demand for X (i.e., QxD)

It implies the X is an inferior good not a Normal good.

Answer: FALSE

Rahul Sunny answered 9 months ago

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