Economics Answers

The Qd represents the amount consumed of good X. Px is the price of good X, Py, is the price of good Y, M is the level of income, and A is the level of expenditure in the advertisement. Assuming good X sells for P40 per unit and Y sells at P30/unit, the firm uses 4,000 units of advertising and the target buyer average income is P10,000. How much of good X will consumers buy? Is good Y a substitute to X or a complements? Is good X a normal or inferior good?

“Alcohol, tobacco, and gasoline have inelastic demand, so the buyers of these items pay most of the tax on them.” Show and explain this statement with the help of hypothetical demand and supply graph. 

1. Suppose the demand and supply functions for good X are: • Qd = 50 – 10p • Qs = -25 + 15p a) What are the equilibrium price and quantity? b) What is the market outcome if the price is $2.75? What do you expect to happen? Why? c) What is the market outcome if the price is $4.25? What do you expect to happen? Why? d) What happens to equilibrium price and quantity if the demand function becomes Qd = 55 – 5p? e) What happens to the equilibrium price and quantity if the supply function becomes Qs = -40 + 10p (demand is Qd = 50- 10p)?