Question
Demand function for two commodities was given as below.
Which of the following options are correct? Q1= A1(Px1)-0.5 (Px2)0.2 Q2 = A2(Px2)-0.5 (Px1)0.6Solution
dQ1 / dPx2 = A1(Px1)-0.5 (0.2) (Px2)-0.8 Ed for Q1 wrt Px2 = 0.2 dQ2 / dPx1 = A2(Px2)-0.5 (0.6) (Px1)-0.4 Ed for Q2 wrt Px1 = 0.6 Thus, the two goods are competitive to each other because ed is positive.
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