The demand curve is given as:
Qd=500 - 5Px + 0.5i + 10Py - 2Pz
Where:
Q D =quantity demanded of good X
Px=price of good X
IÂ Â = consumer income, thousands of dollars
Py=price of good Y
Pz=price of good Z
a. Based on the demand curve above, what is the equation of the demand curve if consumer
income is $30,000, the price of good Y is $10, and the price of good Z is $20?
b. Graph the price of good X is $15, what is the quantity demanded? Show this point on the
demand curve. Label this point on your graph.
c. Suppose the price of good Y rises to $15. Graph the new demand curve.
Solution
a. Goods X is normal good. Because I and X is positive correlation which means when the
income increase the demand of goods X will increase.
b. Good X and good Y are substitute good. When price of good Y increase, the quantity of
X will decrease.
c. Good X and good Z is related product. When price of good Z increase, the quantity of X
will increase. d. The equation of the demand curve should be :