Question

You have computer a market demand curve for X and it looks like this:                 QXd...

You have computer a market demand curve for X and it looks like this:

                QXd = 30,000 -20PX - 8PY + 0.5M

                where PXis the price of X

                                PY is the price of a related good Y

                                M is the income of the buyers in the market.

    What can you say about the demand from good X from this demand curve?

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Answer #1

The coefficient of own price is -20 which indicates that there is a inverse relationship between the quantity demanded of good X and its price. Any change in the price of the good will result in an opposite change in the quantity demanded.

The coefficient of cross price, the price of the related good, is -8 which indicates that good X and good Y are complementary goods. If the price of good Y increases, demand for good X will decrease and vice versa.

The coefficient of income is +0.5 which indicates that good X is a normal good. If the income of the consumer increases the demand for good X will increase.

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