The demand for good X is given by QXd = 6,000 - (1/2)PX - PY + 9PZ + (1/10)M Research shows that the prices of related goods are given by Py = $6,500 and Pz = $100, while the average income of individuals consuming this product is M = $70,000. a. Indicate whether goods Y and Z are substitutes or complements for good X.
Ans. The demand for good X is given by QXd = 6,000 - (1/2 ) PX - PY + 9PZ + (1/10) M
a) The coefficient of PY is - 1 which is a negative value and indicates that there is a negative relationship between the price of good Y and quantity demand for good X. Therefore, Good X and good Y are complementary goods as complementary goods have a negative relationship between the price of one good and demand of other good.
The coefficient of PZ is 9 which is a positive value and indicates that there is a positive relationship between the price of good Z and quantity demand for good X. Therefore, Good X and good Z are substitutes goods as substitutes goods have a positive relationship price of one good and demand of other good.
Get Answers For Free
Most questions answered within 1 hours.