Consider a scenario where the demand is estimated to be represented by the follo
ID: 1142361 • Letter: C
Question
Consider a scenario where the demand is estimated to be represented by the following
equation:
Qx= 1000-10Px+0.1I+10Py,
Where Px is the price of X, I represents the income of the consumer, Py is the price of
another related in consumption good, and Qx is the quantity demanded of X.
Based on this demand function, what can be concluded about X?
A) X is a normal good
B) X is an inferior good
C) The demand for X is not affected by changed in the consumer's income
D) Not enough information is provided to determine anything about X
Explanation / Answer
Ans: a ) X is a normal good.
Explanation :
From the above demand equation , it is cleared that price elasticity for the good X is negative , income elasticity is positive and cross elasticity is positive . We know that , for a normal good , price elasticity for the good is negative , income elasticity is positive and cross elasticity is positive .