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5 May 2018

The X-Corporation produces a good (called X) that is a normal good. Its competitor, Y-Corp., makes a substitute good that it markets under the name âY. â Good Y is an inferior good.

â¨a. How will the demand for good X change if consumer incomes increase? â¨

b. How will the demand for good Y change if consumer incomes decrease?

c. How will the demand for good X change if the price of good Y decreases?

d. Is good Y a lower-quality product than good X? Explain. â¨

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Nelly StrackeLv2

7 May 2018

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Related questions

If product Y is an inferior good, a decrease in consumer incomes will:

a. make buyers want to buy less of product Y.

b. not affect the sales of product Y.

c. shift the demand curve for product Y to the left.

d. shift the demand curve for product Y to the right.

ceruleanlizard145

1. Goods x and y are perfect substitutes. When the market price of good x is $5/unit, firm F produces 500 units of x. When the price of y rises, 100 consumers of y shift to the consumption of good x. This causes industry analysts to believe that firm f has increased the quantity supplied of x by 100 units to meet the higher demand for it.

To arrive at this conclusion, the industry analysts are assuming that:

a. Good x is the only substitute of y available to them.

b. Each person will now buy more of x than they did prior to the increase in the price of y.

c. Good y is an inferior good.

d. The law of supply does not hold for good y.

e. The new buyers of good x will, on average, consume one unit each.

2. Goods x and y are perfect substitutes. When the market price of good x is $5/unit, firm F produces 500 units of x. When the price of y rises, 100 consumers of y shift to the consumption of good x. This causes industry analysts to believe that firm F will increase the quantity supplied of x by 100 units to match this increased demand.

This conclusion is flawed because:

a. It assumes that firm F does not export good x.

b. It assumes that the price of x will not increase in the near future.

c. It assumes that firm F does not export good x.

d. It assumes that firm F is the only producer of good x.

e. It assumes that the supply curve of x will shift to the right in response to the increased demand.

rosesalmon907

Suppose that the extended (generalized) demand function for good Y is:

Q_d^Y= 250,000 - 500 P_Y -1.5 M + 240 P_X

where: Q_d^Y = quantity demanded of good Y

P_Y = Price of good Y

M = Average income of consumers

P_X = Price of related good X

a) If M = $ 60,000 and P_X = $100, what is the reduced demand function for good Y?

b) Continue using the reduced demand equation from part a,

If M = $60,000, P_X = $100, and P_Y = $200 then Q_d^Y = ________

If M = $60,000, P_X = $100, and P_Y = $300 then Q_d^Y = ________

Use this information (prices and quantities demanded of good Y) to calculate the price elasticity of demand between these two points on the demand curve of good Y. Show your work.

c) Use your answer to part b. Between these two points on the demand for good Y, is demand elastic, inelastic, or unitary price elastic? Why? What will happen to total revenues if the price increases between these two points on the demand curve?

d) In part b, you found that when:

M = $60,000, P_X = $100, and P_Y = $200 then Q_d^Y = ________

Now let's suppose that the price of the related good X decreases from $100 to $50 but income remains constant (at $60,000). Assume that the price of good Y is also constant at $200.

If M = $60,000, P_X = $50, and P_Y = $200 then Q_d^Y = ________

Use these prices of good X and the quantities demanded of good Y to calculate the cross-price elasticity of the demand for good Y when the price of good X decreases from $100 to $50.

e) Consider your answer to part d. Based on the value of the cross-price elasticity of demand you just estimated, are goods X and Y substitutes, complements, or unrelated? Why?

f) In part b, you found that when:

M = $60,000, P_X = $100, and P_Y = $200 then Q_d^Y = ________

Now let's suppose that consumer income increases from $60,000 to $80,000 but the price of good X remains constant (at $100). Assume that the price of good Y is also constant at $200.

If M = 80,000 , P_X = $100 and P_Y = $200 then Q_d^Y = _________

Use these income levels and quantities demanded of good Y to calculate the income elasticity of the demand for good Y when income increases from $60,000 to $80,000.

Show your work

g) Consider your answer to part f. Based on the value of the income elasticity of demand you just estimated, is good Y normal, inferior, or income independent?