Question

A supply function of good X is given as

Qsx = 8 + 0.6Px – 0.4Py + 0.3Pz – 0.4C where Qsx is quantity supplied of good X, Px is price of the good in question, and are prices of related goods, and C is cost of production. Y is good Y and Z is good Z.

1. What type of good is Y. Why?

2. What type of good is Z. Why?

Answer 1

Answers to Task#165474

Obtain the first derivative of commodity X with respect to good Y and Z.

$∆QY/∆PY=-0.4$

$∆QX/∆PZ=0.3$

Certainly we know the ratios PY/QX and PZ/QX are positive.

Therefore, the relationship of good X, Y and Z will be revealed by finding their elasticity.

$(∆QX/∆PY) × (PY/QX)=-0.4(PY/QX)$Which will give us a negative value. Hence the goods X and Y are complements to each other since the elasticity is negative.

Good Z;

$(∆QX×∆PZ)×(PZ/QX) =0.3(PZ/QX)$ Which will give us a positive value showing that good X and Z are substitutes since their elasticity is positive.