Given the following market demand function for the commodity X Q=f(P,, P., P, I.T.A)
where
P= Price of the commodity X P= Price of a substitute commodity Y
P= Price of commodity Z which is complement of X
1 = Level of per captia income of consumers T=Tastes and preferences of consumers A = Advertising expenditure by a firm producing X
How will the market demand for a commodity change? (1) if price of the commodity X rises,
(ii) if price of the substitute good Y rises, (iii) if price of complementary commodity Z falls,
(iv) per capita income (I) of the consumers rises,
(v) the firm producing X increases its advertisement expenditure.
i) If the price of the commodity X rises,
This will increase demand for commodity Y which is a substitute for commodity X. On the other hand, the demand for commodity Z will fall since it is a complement of commodity X.
ii). If the price of the substitute good Y rises,
The demand for commodity Y will decrease. Hence the demand for commodity X will rise leading to an increase in demand for commodity Z which is a compliment.
iii). If the price of complementary commodity Z falls,
Demand for commodity Z will increase leading to an increase in demand for commodity X. On the other hand, the demand for substitute Y will fall.
iv). Per capita income (I) of the consumers rises,
The demand for all commodities will rise since the consumers have more cash to spend.
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