Answer to Question #89067 in Microeconomics for Nonhlanhla Dhlamini

Question

The demand function for product X is: Qd = 600 – 20Px + 0.02Y – 5Pr
The supply function is: Qs = –300 + 10Px
Where:
Qd = the quantity of X demanded
Qs = the quantity of X supplied
Px = the price of product X
Y = the average consumer income
Pr = the price of the related product R

Is product X a normal or an inferior good? Explain. (3)
1.2 Are products X and R substitutes or complements? Explain. (3)
1.3 If Y = R35 000 and Pr = R20, draw the precise demand curve for product X. (8)

Answer 1

1.1 Product X is a normal good, because an increase in income Y will cause an increase in quantity of product X demanded and vice versa.

1.2 Products X and R are complements, because there is an inverse relationship between price of R and quantity of product X demanded.

1.3 If Y = R35 000 and Pr = R20, the precise demand curve function for product X is:

Qd = 600 – 20Px + 0.02×35000 – 5×20 = 1200 - 20Px.