A firms demand equation is given by Qd 60 60P 2Y where Qd

A firm\'s demand equation is given by: Qd = 60 - 60P + 2Y, where Qd is quantity, P is price, and Y is income. If price increases by $2 and income increases by $80, then quantity demanded will:

A) increase by 160 units

B)  increase by 80 units

C)  decrease by 120 units

D) increase by 40 units

E) decrease by 60 units

Solution

From above equation we know dQd/dP=-60. Thus price increase by $2 will decrease demand by 120 units.

And dQd/dY=2 which makes an increase in income by $80 will increase demand by $160.

Thus combined effect of $2 decrease in price and $80 increase in income will increase demand by 40units.

Thus ans is D