Use the following general linear demand function below: Qd = a + bP + cM +...

Use the following general linear demand function below:

Q_d = a + bP + cM + dP_R

whereQ_d = quantity demanded, P = the price of the good, M = income, P_R = the price of a good related in consumption.For the general linear demand function given above

b is the effect on the quantity demanded of the good of a one-dollar change in the price of the good, all other things constant.

d is the effect on the quantity demanded of the good of a one-dollar change in the price of the related good, all other things constant.

ΔQ_d/ΔM = c.

all of the above

Solutions

Expert Solution

For the given linear demand function

Q_d = a + bP + cM + dP_R

The effect on the quantity demanded of the good of a one-dollar change in the price of the good, all other things constant will be equal to dQ/dP = b (The first order partial derivative of the linear demand function with respect to own price P).

The effect on the quantity demanded of the good of a one-dollar change in the price of the related good, all other things constant will be eual to dQ/dPr = b (The first order partial derivative of the linear demand function with respect to the Pr or price of related good)

Also The first order partial derivative of the linear demand function with respect to the M or Change in Q/Change in M = c.

So the correct option should be All of the above.

Rahul Sunny answered 1 year ago

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