# Consider a general demand function for a good, X, that has been estimated as: Q(d) = 200 - 8*Px...

## Question:

Consider a general demand function for a good, X, that has been estimated as:

{eq}Q(d) = 200 - 8*Px + 2*Py + 0.4*M {/eq},

where Px is the price of the good being studied

Py is the price of a related good, Y and

M is per capita income.

a) Are X and Y complement, substitutes, or neither? How do you know?

b) Is X a normal good or an inferior good? How do you know?

c) Calculate the direct demand function, assuming that the price of Y is $6 and that per capita income is $38,000.

d) Calculate the inverse demand function, using your answer to c).

## Law of demand

Law of demand states that if a consumer's demand for a good move in the same direction as the consumer's income, the consumer's demand for that good must be inversely related to the price of that good. Thus, the demand curve is linear and negatively sloped.

## Answer and Explanation: 1

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View this answer**(a)** The two goods X and Y are substitutes of each other. It is so because with the increase in the price of good Y, the demand for X will also...

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Chapter 3 / Lesson 7Discover what a normal good is, know the definition of an inferior good and see examples of normal goods and inferior goods. Read about the demand curves for inferior goods and normal goods.

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