(1.) The monthly general demand function for Product A is give as Qd = 600 – 4PA
ID: 1216937 • Letter: #
Question
(1.) The monthly general demand function for Product A is give as Qd = 600 – 4PA - 0.03M -12PB + 15T +6Pe + 1.5N, where PA is the price of product A itself, M is income, PB is the price of a related good, T is Taste, Pe is the expected future price, and N is the number of buyers. What will be the quantity demanded of good A when PA = 0, M = 0, PB = 0, T = 0, Pe = 0, and N = 0? Question 2: The monthly general demand function for Product A is give as Qd = 600 + 4PA - 0.03M + 12PB + 15T + 6Pe + 1.5N, where PA is the price of product A itself, M is income, PB is the price of a related good, T is Taste, Pe is the expected future price, and N is the number of buyers. Given the signs of the coefficients of the variables in this function, which variable(s) does not appear to be of incorrect sign from the demand theory perspective?Explanation / Answer
SOLUTION : GIVEN : Qd = 600 -4PA-0.03M-12PB+15T+6Pe+1.5N .Putting all the relevant and given value in this demand function we will have Qd = 600
Question 2) Here the coefficient of N has correct sign from demand theory perspective.If the number of buyer of a particular good increases definetely the demand will increase therefore it is having a positive coefficient.
IF we talk about related goods : there are two types of related good substitute goods and composite goods .If the goods in our model are substitute goods then the coefficient of the related good .ie the coefficient of PB is correct according to the demand theory perspective.Note if the price of substitute goods increases the demand of other good increases.
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