Answer to Question #301305 in Microeconomics for Safir ul rehman

Question

Q1. Show what will happen to the demand curve of commodity X when price of a substitute increases.

Q2. X and Y are substitute to one another what happen when price of a substitute increases, show its effects on the demand of the other goods.

Q3. If money income increases what will happen in the demand of the commodity X?

Q4. If money income decreases what will happen in the demand of the commodity X?

Answer 1

Q1. When the price of a substitute good increases, there's is an outward shift or increase in the demand of commodity X. This is because commodity X becomes relatively cheaper compared to it's substitute.

Q2) If X and Y are substitutes, then an increase in the price of one, say X, will cause consumers to shift to the the substitute, Y, thereby decreasing the demand for the one with a price increase and causing an increase in the one whose price didn't change.

Q3) An increase in money income could have either of two effects on commodity X. i) if commodity X is a normal good, then an increase in money income will cause an increase in the demand for it. ii) if commodity X is an inferior good, then a decrease in money income will lead to a reduced demand for it as consumers move to other other goods.

Q4) if money income decreases, the demand for commodity for commodity X will either decrease if it's a normal good, or increase if it's an inferior good.