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Unformatted text preview: Take-home Quiz 4 Managerial Economics MGNT 6005 Honor Code Applies 1. The estimated market demand for good X is Q d = 70 -3.5P 0.6 I + 4P R Where Q d is the estimated number of units of good X demanded, P is the price of the good, I is income, P R is price of related good R. (All parameters are statistically significant at 1 percent level). A. Is good X a normal or inferior good? Explain The good X is inferior because it has an inverse relation with the income as it is obvious from the demand function for good X above. The demand for good X is countercyclical which means that X is inferior good that will rise during the recessions when the income is decreased. For example, the demand for X tends to decrease as incomes rise because consumers replace them with more desirable alternatives. B. Are X and R substitutes or complements? Explain X and R are substitute products. A rise in P R causes an increase in the demand for X. Apparently, there is a direct relation between A and R, and we can see the sign + in front of the price of R, so...
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- Spring '11