Answer to Question #165516 in Microeconomics for Christo Mensah

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,

Py

and 

P

z

are 

prices of related goods, and C is cost of production. 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, and Pz, and C.

Answer 1

Products x and z are complementary products, and product y is a substitute for product x.

When the price of goods x changes per unit, the supply increases by 0.6.

When the price of goods y per unit changes, the offer decreases by 0.4.

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

When the cost price changes per unit, the offer decreases by 0.4.