Answer to Question #165515 in Microeconomics for Christo Mensah

Question

Demand function for a normal good X is given as

Qdx = 4 – 0.4Px – 0.2Py + 0.3Pz + 0.3M

where Qdx is quantity demanded for good X, Px is price of good X, Py

and 

P

z

are 

prices of related goods, and M is income. Y is good Y and Z is good Z.

i. What type of good is Y? Explain your answer. 

ii. What type of good is Z? Explain your answer. 

iii.Interpret the coefficients of Px, Py, Pz, and M.

Answer 1

Products x and y are complementary products, and product i replaces product x.

When the price of good x changes per unit, demand decreases by 0.4.

When the price of a good y per unit changes, the demand decreases by 0.2.

When the price of goods z per unit changes, demand increases by 0.3.

When income changes, demand increases by 0.3.