The generalized demand and supply functions for good X are
Qd = 638 - 8P + 0.005M - 4PY Qs = 300 + 3P
Where
QD = quantity demanded of good X
P = price of good X
M = consumer income
PY = price of good Y
QS = quantity supplied of good X
P = price of good X
a. Are good X and good Y substitutes or complements? How do you know?
b. Is good X a normal good or an inferior good? How do you know?
c. What is the demand function when M = $15,000, PY = $20?
d. Solve for the equilibrium price (Po) and the equilibrium quantity (Qo).
e. Suppose that, on average, consumer income rises to $20,000. Solve for the new equilibrium price (P1) and the new equilibrium quantity (Q1).