Question

he demand for good X is given by QXd = 6,000 - (1/2)PX - PY + 9PZ + (1/10)M Research shows that the prices of related goods are given by Py = $6,500 and Pz = $100, while the average income of individuals consuming this product is M = $70,000. a. Indicate whether goods Y and Z are substitutes or complements for good X.

Answer 1

Answer:

Good Y = complement

Good Z = substitute

Explanation:

The equation that describes the demand for good X is:

$Q_{Xd} = 6,000 - \frac{1}{2}PX - PY + 9PZ +0.10M$

Analyzing the equation, if there is an increase in the price of good Y, then the demand for good X decreases. This behavior indicates that good Y is a complement for good X since there is a positive relationship between price changes in Y and demand for X. As for good Z, an increase in its price leads to an increase in demand for X, which leads us to believe that good Z is a substitute for X.