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MS 6404 Managerial Economics
Student ID :
Saelim
5772006
Student Name: Ausara
Assignment 2
Suppose that the generalized demand function for good X is
Qd
here
=
60 − 2 Px + 0.01M
+
7P
r
!d"#uantit$ of X demanded%
&' " price of X%
("a)erage consumer income%
&r"price of related good *
a. Is good X normal or inferior? Explain?
Answer: The good X is “normal good” because the relationship between
demand of good X and income is positive as shown in the e!uation
“"#.#$%”. Therefore if the income of consumer increase the demand of
the good X will also increase.
b. &re goods X and ' substitutes or complements?
Answer: The good X and ' are substitutes as it has shown in the
e!uation as "()r. The positive relationship of demand of good X with the
price of good ' explained that if the price of good ' has increase the
demand of good X will be increased.
Suppose that ("+,0%000 and &r"+20
-i)en that the suppl$ function is !s".600/0&
c. *hat is the demand function for good X?
+d
,
-#  /)x " #.#$% "()r
Answer:
+d
,
-#  /)x " #.#$01####2 " (0/#2
+d
,
-#  /)x " 1## " $1#
!d
"
600 1 2&'
d. *hat are the e!uilibrium price and !uantit3?
+d
,
+s
Answer:
-##  /)x
,
4-## "$#)x
$/##
,
$/)x
)x
,
$##
he e#uili3rium price is +004
+d
,
-##4 /0$##2
+d
,
1##
,
4-## " $#0$##2
+s
,
1##
+s
he e#uili3rium #uantit$ is ,004
e. *hat happen if income increases to 56/###?
Answer: If the income increases to 56/### the equilibrium price will
be increased to $110.83 and the equilibrium demand will also
increase to 508 units. &s per the theor3 of change in demand due to
income increase causes demand curve to shift rightward. %oreover good
X is normal good which means if the income of consumers increase the
e!uilibrium price and !uantit3 will have directl3 impact. Therefore when
demand raised up the price will goes up too.
f.
*hat happen if price of good ' decreases to 5$1?
Answer: If )rice of good ' decrease to 5$1 the equilibrium price will
drop to $96.5 and equilibrium demand will also drop to 365 units .
7ecause good X and ' are substitute once the price of good ' drops the
demand of good X will also decrease in the positive impact.
g. *hat happen when suppl3 shift to +s, 48-#"$#)x?
Answer: if the + s , 48-# " $#) x  the new equilibrium price will be
$80 and quantity supply will be 0 units. *hich means the suppl3
increase and shift the curve to the rightward causes the price decrease
from 5$## to 59# but the demand of the product will be increased from
1## to 11# units.