Question: Suppose that the general demand function for good X is Q d = 60 - 2P x + 0.01M + 7P R where Q d

Suppose that the general demand function for good X is

Q_d = 60 - 2P_x + 0.01M + 7P_R

where

Q_d = quantity of X demanded
P_x = price of X
M = (average) consumer income
P_R = price of a related good R

a. Is good X normal or inferior? Explain.
b. Are goods X and R substitutes or complements? Explain. Suppose that M 5 $40,000 and P_R = $20.
c. What is the demand function for good X?
Suppose the supply function is

Q_s = 2600 + 10P_x

d. What are the equilibrium price and quantity?
e. What happens to equilibrium price and quantity if other things remain the same as in part d but income increases to $52,000?
f. What happens to equilibrium price and quantity if other things remain the same as in part d but the price of good R decreases to $14?
g. What happens to equilibrium price and quantity if other things remain the same, income and the price of the related goods are at their original levels, and supply shifts to Q_s = -360 + 10P_x?

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