A You have computer a market demand curve for X and it looks

A. You have computer a market demand curve for X and it looks like this: QXd = 20,000 -10PX + 7PY + 3M where PX is the price of X PY is the price of a related good Y M is the income of the buyers in the market. What can you say about the demand from good X from this demand curve?

B. Given the above demand curve, how many of good X will consumer purchase when PX is $100 a unit, PY is $50 a unit, and M is $25,000?

Solution

A. from the equation it can be seen that X is a normal good, because there is a positive relationship between income (M) and demand. When price of related good rises demand rises, this means they are substitutes for ach other. And like most commodities the demand has an inverse relationship with price.

B. Qx= 20,000- 10(100) + 7(50) +3 (25,000)=94350