Answer to Question #215779 in Microeconomics for Tobex

Question

The X-Corporation produces a good (called X) that is a normal good. Its competitor, Y-Corp., makes a substitute good that it markets under the name Y. Good Y is an inferior good. 

a. How will the demand for good X change if consumer incomes decrease? 

b. How will the demand for good Y change if consumer incomes increase? 

c. How will the demand for good X change if the price of good Y increases? 

d. Is good Y a lower-quality product than good X? Explain.

Answer 1

a) If consumer income decrease, demand for good X will decrease.

b)If consumer income increases, demand for good Y will decrease since an increase in income will not lead to an increase in consumption of an inferior good. 

c) If the price of good Y increases, as a substitute good, this will lead to a increase in the consumption for good X.

d) good Y is a lower-quality product compared to good X because its demand decreases when consumer income rises, unlike good X whose demand rises as consumer income rises.