Question

Assume that the demand for product X is represented by the following equation: QDX =35–5PX +1.6PY...

Assume that the demand for product X is represented by the following equation: QDX =35–5PX +1.6PY +0.88PZ +3I
What is the relationship (complements or substitutes) between products Y and Z and X

X and Y _________________________

X and Z _________________________

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Answer #1

Ans. 1) Products X and Y are close substitutes as coefficients of the price of product Y is positive and that shows that changes in the price of the product Y ( increase/ decrease) lead to the same directional changes ( increase/ decrease ) in quantity demand of product X

  

2) Products X and Z are substitutes as coefficients of the  price of the product Z is positive and that shows that changes in the price of the product Z ( increase/ decrease) lead to the same directional changes ( increase/ decrease ) in quantity demand of product X

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