Question

The demand for pizzas in a large town is written as Q = 120 - 10P + 5PB - 0.5PS - 10Y, where Q is the quantity demanded, P is the price, PB is the price of burritos, PS is the price of sodas sold in the pizza restaurants, and Y is personal income per month (in thousands dollars). We can conclude that burritos and pizzas are substitutes. complements. normal goods. unrelated.

Answer 1

Demand of Pizzas is given by :

Q = 120 - 10P + 5P_B - 0.5P_S - 10Y

We can see from above that coefficient of price of burritos(PB) is +5 which is positive which means that as price of burritos increases demand of pizzas will increase.

Two goods are substitute if increase in price of one results in increase in demand of the other and vice versa.

Two goods are complementary if increase in price of one results in decrease in demand of the other and vice versa.  

Here, increase in price of burritos resulted in increase in demand of pizzas. Thus Pizzas and burritos are substitute goods. Thus option (a) is correct and (b) and (d) are incorrect.

A good is a normal if increase in income results in increase in demand of a good and thus it does not show relationship between two goods and thus option (c) is also incorrect.

Hence, the correct answer is (a) substitute.