Question

A demand function has been estimated to be Q_x = 550 – 5P_x + 1.5P_y - 2Y. If drawn as a traditional demand curve connecting Px with Qx, an increase in Py would be visualized as a:  

Group of answer choices

shift of the entire demand curve right.

movement up the stationary demand curve.

movement down the stationary demand curve.

shift of the entire demand curve left.

Answer 1

Ans.- (a)

Qx = 550 - 5Px + 1.5Py -2Y



A demand curve shows the relationship between price and quantity demanded for a good.



There is a movement along the demand curve if own price of the good changes.



A change in any determinant of the good except its own price shifts the demand curve.



Here,



dQx/dPy= 1.5



It means if price of good Y increases then demand for good X also increases and hence it shifts demand curve to the right.