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Problem #1
The X-Corporation produces a good (called X) that is a normal good. Its competitor, Y-Corp., makes a substitute good that it markets under the name Y. Good Y is an inferior good.
How will the demand for good X change if consumer incomes increase?
How will the demand for good Y change if consumer incomes decrease?
How will the demand for good X change if the price of good Y decreases?
Is good Y a lower-quality product than good X? Explain.
Problem #2
Good X is produced in a competitive market using input A. Explain what would happen to the supply of Good X in each of the following situations:
The price of input A increases.
An exercise tax of $1 is imposed on good X
An ad valorem tax of 5 percent is imposed on good X
A technological change reduces the cost of producing additional units of
good X.
Problem #3
The demand for good X is given by:
Qdx = 1,200 – Ѕ Px + ј Py – 8Pz + 1/10 M
Research shows that the prices of related goods are given by Py =$5,900 and Pz = $90, while the average income of individuals consuming this product is M = $55,000.
Indicate whether goods Y and Z are substitutes or complements for good X.
Is X an inferior or a normal good?
How many units of good X will be purchased when Px = $4,910?
Determine the demand function and inverse demand function for good X. Graph the demand curve for good X.