Suppose that a consumer has the following demand function: x ∗ (px, py, m) = 3mpy/px...

Suppose that a consumer has the following demand function: x ∗ (px, py, m) = 3mpy/px . What type of good is good x? (Remember, m > 0, px > 0, py > 0)

(a) ordinary, complement, normal

(b) ordinary, complement, inferior

(c) inelastic, substitute, inferior

(d) ordinary, substitute, normal

Expert Solution

x =3mPy/Px

m>0, Px>0 and Py>0

If Py increses, as its in the numerator , with no change in Px and m, x increses

increase in price of y increases demand for x, thus x is substitute

if m increases, with no change in Px and Py, x increases.

Thus increase in m increases x. x is a normal good.

Thus the correct option is (d)

Rahul Sunny answered 2 years ago

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