Are goods x and y complements or substitutes

Reference no: EM13690973

Suppose you have the following demand function for the good x: x* = 80(py/px) - 0.5I

a. Are goods x and y complements or substitutes? How do you know?

b. Does good x demand satisfy the first law of demand? Why or why not?

c. Suppose the price of good x is $4, the price of good y is $2 and income is $20. Using the income elasticity of demand for good x, determine the percent change in demand for good x when the consumer’s income rises by 1.5 percent?

Reference no: EM13690973

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