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The general demand function for a good, Good A, isâ?¦

QD = 800 â?" 5*P + 0.02*M + 6*PR + 3*T + 5*PE + .4*N

Where
QD = quantity demanded of Good A per month
P = the price of Good A
M = average household income
PR = the price of a related good, weâ??ll call it Good B
T = a consumer taste index
PE = the price consumers expect to pay next month for Good A
N = the number of buyers in the market

Explain:

Is Good A a normal good or an inferior good? How do we know exactly?

Are Good A and Good B complements or substitutes? How do we know exactly?

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Solution Summary

Tips to determine whether a good is normal by looking at the demand function are provided.

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To determine whether a good is normal by looking at the demand function, we look at the sign on the household income variable. If this is positive, as it is in this case, then it is a normal good. This means that as income rises, quantity demanded rises. If you have more money, then you buy ...

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