Suppose the demand functions for goods 1, 2, and 3 have the following functional forms, where Q denotes quantity demanded, P denotes price, and H denotes income:
(i). (ii). (iii).
Based on these demand functions, which of the following goods are known to be normal goods?
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Suppose the demand functions for goods 1, 2, and 3 have the following functional forms, where Q denotes quantity demanded, P denotes price, and H denotes income: (i). Q₁ = 120 - 3.5P₁ - 6P₂ + 14H (ii). Q₂ = 100 - 2P₂ + 3P₃ + 1.1H (iii). Q₃ = 1500 - 0.5P₃ - 30H Based on these demand functions, which of the following goods are known to be normal goods? (A) (i), (ii) and (iii). (B) only (i) (C) only (iii). (D) (i) and (ii) only
Also written as: Suppose the demand functions for goods 1, 2, and 3 have the following functional forms, where Q denotes quantity demanded, P denotes price, and H denotes income: (i). Q_1 = 120 - 3.5P_1 - 6P_2 + 14H (ii). Q_2 = 100 - 2P_2 + 3P_3 + 1.1H (iii). Q_3 = 1500 - 0.5P_3 - 30H Based on these demand functions, which of the following goods are known to be normal goods?
Demand theory and elasticity has come up 161 times in 7 exams since 2004.
This question is on Income elasticity, normal and inferior goods and Engel curves, part of Demand theory and elasticity in Microeconomics.
How demand responds to income, how goods are classified by that response, and Engel's law.
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Question from the UoH 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.