a.complements since the coefficient on M is positive.
b.substitutes since the coefficient on M is positive.
c.complements since the coefficient on is positive.
d.substitutes since the coefficient on is positive.
-estimated demand for a good is where Q is the quantity demanded of the good,P is the price of the good,M is income,and is the price of related good R.If the price of the good falls by $4,the quantity demanded will ________ by ________ units.
A)increase; 5 units
B)increase; 20 units
C)increase; 50 units
D)increase; 48 units
E)decrease; 12 units

Question

a.complements since the coefficient on M is positive.
b.substitutes since the coefficient on M is positive.
c.complements since the coefficient on  is positive.
d.substitutes since the coefficient on  is positive.
-estimated demand for a good is  where Q is the quantity demanded of the good,P is the price of the good,M is income,and  is the price of related good R.If the price of the good falls by $4,the quantity demanded will ________ by ________ units.
A)increase; 5 units 
B)increase; 20 units 
C)increase; 50 units 
D)increase; 48 units 
E)decrease; 12 units

Quizplus · Accepted Answer

Since the coefficient on P is negative, we know that the good is normal. Additionally, since the coefficient on 11eab534_6985_6ca2_9198_e3de4cac21ba_TB2562_11 is positive, we know that the goods are substitutes. Therefore, when the price of the good falls, consumers will substitute away from the related good (which has now become relatively more expensive). This will lead to an increase in the quantity demanded of the good. To determine the magnitude of this increase, we need to look at the coefficient on P. For every $1 decrease in price, the quantity demanded will increase by 5 units (since the coefficient on P is -5). Therefore, a $4 decrease in price will result in an increase in quantity demanded of 20 units (4*$5 = 20).

A.complements Since the Coefficient on M Is Positive