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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 Summary

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

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 provided by:
J Pye, MSc
Education
  • MSc, California State Polytechnic University, Pomona
  • MBA, University of California, Riverside
  • BSc, California State Polytechnic University, Pomona
  • BSc, California State Polytechnic University, Pomona
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