The estimated demand for a good X is $\hat { Q } = 70 - 3.5 P - 0.6 M + 4 P _ { Z }$ ,where $\hat { Q }$ = units of the good,P = price of the good,M = income,and $P _ { z }$ = price of related good Z.All parameter estimates are statistically significant.Which of the following statements is correct?
A)X is a normal good.
B)X is an inferior good.
C)X and Z are substitutes.
D)X and Z are complements.
E)both b and c

Question

Quizplus · Accepted Answer

The negative coefficient of M (-0.6) indicates that as income (M) increases, the demand for good X decreases, suggesting that X is an inferior good. The positive coefficient of $P _ { Z }$ (4) indicates that as the price of the related good Z increases, the demand for good X increases, suggesting that X and Z are substitutes.

The Estimated Demand for a Good X Is Q^=70−3.5P−0.6M+4PZ\hat { Q } = 70 - 3.5 P - 0.6 M + 4 P _ { Z }Q^​=70−3.5P−0.6M+4PZ​

The Estimated Demand for a Good X Is $\hat { Q } = 70 - 3.5 P - 0.6 M + 4 P _ { Z }$