Suppose the demand function for good X is estimated to be Qdx = 1000 – 25Px + 10Py + 100M, where Qdx is quantity demanded of X, Px is the price of good X, Py is price of some other good Y, and M is the average income of consumers. By examining this function, we can say good X has a downward sloping demand curve, is a substitute with good Y, and is a normal good.
1 From the given question it can be clearly seen that the coefficient of good X is negative which means it follows the law of demand so it is having a download sloping demand curve
2 A good is said to have substitute with respect to another good if the value of cross price elasticity of demand is positive
here the two goods are X and Y and when we look at the coefficient of Y then it is positive
so both goods are substitute to each other
3 A good is said to have normal good if the value of income elasticity of demand is positive
here the coefficient of income is also positive from the given equation so the good us also a normal goods
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