Question

A. Given the demand function 𝑄𝑑 = 15 − 0.2𝑃, find quantity demanded when price is GH¢ 2.00, GH¢ 5.00, GH¢ 7.00, and GH¢ 10.00. Present your results in a table.

B. Demand function for good X is given as Qdx = 6 – 0.2Px + 0.28Pz – 0.45Py

where Qdx is quantity demanded for good X, Px is price of good X, Py and Pz are

prices of related goods. 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.

Answer 1

A)

B) Given that the demand for food X is

$Qd_x=6-0.2P_x+0.28P_z-0.45P_y$

i) Good Y is a complementary good. This is because the cross elasticity is negative i.e. -0.45

ii) Good Z is a substitute good. The cross elasticity is positive, i.e. 0.28