Answer to Question #67186 in Macroeconomics for NATASHA CHUCKRVANEN

Question

A firm’s demand function for good x is estimated as follows:-

Qx = 1800 –1/4Px + 1/8Py – 1/3Pz + 1/5Y

Where Qx represents quantity demanded of good x, Px is price of good x, Py is price of good y, Pz is price of good z and Y is income.
Explain whether goods Y and Z are substitutes or complements for good X. (5 marks)

Answer 1

Good Y is a substitute of good X, because quantity of demand of X increase when price of Y increase

Good Z is a complement of good X, because quantity of demand of X decrease when price of Y increase