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    Comparative Statics - Supply & Demand Curves

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    Question 1
    The X-corporation produces a good (called X) that is a normal good. Its competitor, Y-Corpor., makes a substitute good that it markets under the name "Y." Good Y is an inferior good.
    a. How will the demand for good X change if consumer incomes decrease?
    Hint: Draw the original values for the demand and supply curve and then show how a decrease in income will demand. Label your curves and points, following the use of comparative statics given on page 63.
    b. How will the demand for Good Y change if consumer incomes increase?
    Hint: Again draw the original curves and show how the relevant curve will be shifted. Label accordingly.
    c. How will the demand for good X change if the price of good Y increases?
    Hint: Use comparative statics as explained above.
    d. Is good Y a lower-quality product than good X? Explain

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    Solution Preview

    A pdf file with the curves is shown for parts a, b and c is attached.

    a) A normal good is a good whereby a decrease in income leads to a decrease in the demand of the good. Since X is a normal good, demand for good X will decrease if consumer incomes decrease, i.e. the demand curve for X shifts LEFT.

    As an example, you can think of good ...

    Solution Summary

    Comparative statics is used to explain how demand changes. Graphs are provided. 255 words and attached as PDFs.