Reference no: EM13998635
Suppose you have the generic demand curve
Q = 3000 - 400P – 300P1 + 200P2 + 0.05M
Where P is the price of the good, P1 and P2 are prices of related goods and M is income.
Currently P is $1.00, P1 is $0.50, P2 is $1.50 and M is $50,000.
1) Calculate demand using the current market conditions. (Show your work)
2) Is P1 a substitute or complement? (Why)
3) Is P2 a substitute or complement? (Why)
4) Is this product normal it inferior to Income? (Why)
5) Under current market conditions calculate the price elasticity for this product. (Show your work)
6) What conclusions can be made from the elasticity you calculated in question 5?
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