If your demand for some good X is X I PxPy X equals Income

If your demand for some good X is:

X   = ___I__          

        Px+Py

( X equals Income divided by Px+Py)

a) Is X a normal or inferior good? Show me how you know.

b) Is good Y a substitute or complement for good X? Show me how you know

Solution

a. X is a norrmal good since, the income is divided equally by the probability of buying a good X with that of probability of buying a good Y. Hence X is a normal good

b. Good Y is a compliment for good X since the probability of buying good X against buying good Y is all same. Hence good Y is not a substitute and rather is a compliment for good X.