Consider a scenario where the demand is estimated to be represented by the following equation: ,
$$Q _ { x } = 1000 - 10 P _ { x } + 0.1 I + 10 P _ { y }$$ 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, what can be concluded about the relationship between good X and Y?
A) They are substitutes in consumption
B) They are complements in consumption
C) They are unrelated in consumption
D) There is not enough information provided to make any conclusion

Question

Quizplus · Accepted Answer

The positive coefficient of $P_y$ (10) in the demand equation indicates that as the price of good Y increases, the demand for good X increases. This suggests that goods X and Y are substitutes in consumption, as consumers turn to good X when the price of good Y increases.

Consider a Scenario Where the Demand Is Estimated to Be Qx=1000−10Px+0.1I+10PyQ _ { x } = 1000 - 10 P _ { x } + 0.1 I + 10 P _ { y }Qx​=1000−10Px​+0.1I+10Py​

Consider a Scenario Where the Demand Is Estimated to Be $Q _ { x } = 1000 - 10 P _ { x } + 0.1 I + 10 P _ { y }$