Suppose we have the following equations: Demand Curve: Q_D^X=-1,450-25P_X+12.5P_Y+.2Inc
Supply Curve: Q_S^X=-100+75P_X-25P_Y-12.5P_Z+10R
Where Q = quantity
Px = price of our good X
Inc = income = $8,000
R = rainfall = 20
PY = price of product Y = $5
PZ = price of product Z = $8
a) Calculate equilibrium price and quantity.
b) Is Good X a normal good or inferior good? Use elasticities to answer this, and explain.
c) Are Goods Y and Z substitutes or complements to our good X? Use elasticities to answer this, and explain. It is easiest to use simple calculus to calculate elasticities.
Suppose we have the following equations: Demand Curve: Q_D^X=-1,450-25P_X+12.5P_Y+.2Inc
Supply Curve: Q_S^X=-100+75P_X-25P_Y-12.5P_Z+10R
Where Q = quantity
Px = price of our good X
Inc = income = $8,000
R = rainfall = 20
PY = price of product Y = $5
PZ = price of product Z = $8
a) Calculate equilibrium price and quantity.
b) Is Good X a normal good or inferior good? Use elasticities to answer this, and explain.
c) Are Goods Y and Z substitutes or complements to our good X? Use elasticities to answer this, and explain. It is easiest to use simple calculus to calculate elasticities.
Related textbook solutions
Related questions
The generalized demand and supply functions for good X are
Qd = 10 -2Px - 4PY + M Qs = 10 + 2PX
|
Ā Where: Ā Ā QD = quantity demanded of good X Ā Ā Ā PX = price of good X Ā Ā Ā M = consumer incomeĀ Ā Ā Ā PY = price of good Y |
Ā Ā Ā Ā QS = quantity supplied of good X Ā Ā PX = price of good X Ā |
A. Are good X and good Y substitutes or complements? Why?
B. Is good X a normal good or an inferior good? Why?
C. What is the demand function when PY = $4 and M = $600?
d. Use the demand function you found in part c. and solve for the equilibrium price (Po) and the equilibrium quantity (Qo).
e. Find the inverse demand function and the inverse supply function.
f. Sketch this market.
