Answer to Question #170534 in Microeconomics for Buabeng Enoch

Question

𝑄𝑑 = 200 − 0.2𝑃𝑓 − 0.1𝑃𝑏 + 0.02𝑌

Where: 𝑄𝑑is the quantity of fish sold in tonnes per week.

𝑃𝑓 is the price of fish (in Ghana cedi per tonne)

𝑃𝑏 is the price of beef (in Ghana cedi per tonne)

𝑌 is annual personal disposable income per head (in Ghana cedis).

(A) Explain, in a maximum of ONE sentence, what the following constant and 

coefficients in the demand equation mean

(i) 200:

 

(ii) -0.2: 

(iii) -0.1: 

(iv) 0.02:

(B) Use one of the following answers to answer the questions below and explain why:

(i) a decrease in demand (ii) a decrease in quantity demanded (iii) an increase in 

demand 

(iv) an increase in quantity demanded

a. An increase in 

b. A decrease in 

c. An increase in 

 (C) From the equation, calculate what would happen to demand (with ceteris paribus 

 assumption in mind) for fish if 

i)

the price of fish went up by GHc3 per tonne in 2021

 Answer:

ii)

the price of beef went up by Ghc3 per tonnes in 2021

Answer:

iii)

the real personal disposable income per head went up by GHc100 in 2021

 Answer:

 (D) Explain whether 

i)

Fish and beef are substitutes, complements or unrelated

Answer:

ii)

Fish is inferior good or nor

Answer 1

(a)(i) The constant of 200 of the demand equation means the value that takes into account all relevant non-specified factors that affect demand for fish.

(ii) The $P_f$ component of the demand equation has a negative sign which means that with each cedi increase per tonne of fish, quantity demanded for fish will drop by 0.2 tonnes per week.

(iii) The $P_b$ component of the demand equation has a negative sign which means that with each cedi increase per tonne of beef, quantity demanded for fish will drop by 0.1 tonnes per week.

(iv) The $Y$component of the demand equation has a positive sign which means that with each cedi increase of annual personal disposable income per head, quantity demanded for fish will increase by 0.02 tonnes per week.

(b)An increase in P_f

(i) a decrease in demand .

If the price of fish goes up, people will tend to consume beef more .

(ii) a decrease in quantity demanded.

People will consume less fish if the price increase since they will go for the substitutes.

(iii) an increase in demand .

This will occur when the consumer annual personal disposable income increases. Increase in annual personal disposable income increases the demand for fish.

(iv) an increase in quantity demanded.

When consumer annual personal disposable income increases, people will tend to consume more fish hence the quantity of fish demanded increases.

(c)(I) The demand for beef increases while demand for fish decrease.

(ii) Demand for fish increases while demand for beef decreases.

(iii) The demand for fish increases.

(d)(I) Fish and beef are substitutes.

If the price of one good increase, the demand for the substitute increase.

(ii)Fish is a normal good.

The demand of fish increase when annual personal disposable income rise.