Question

. You have computer a market demand curve for X and it looks like this: QXd = 30,000 -20PX - 8PY + 0.5M where PX is 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?

Given the above demand curve, how many of good X will consumer purchase when PX is $100 a unit, PY is $50 a unit, and M is $25,000?

Answer 1

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

Based on demand function, demand for good X depends on the price of Good X , Price of good Y and Income of consumer.

Demand for good X is inversely related to the price of Good X and Price of Good Y. Goods X and Y are complementary goods. Hence, Demand for Good x has negative relations with Prices of goods X and Y.

Further, Demand for good X is positively related to income of consumer. Hence, we can say that good x is normal good.

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

Substituting Values

QXd = 30,000 -20(100) - 8(50)+ 0.5(25,000)

= 30,000 -2,000 - 400 + 12,500

= 40,100