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)0.6
ACompetitive to each otherCorrect AnswerIncorrect Answer
BComplimentary to each otherCorrect AnswerIncorrect Answer
CCompetitive as well as complimentary to each otherCorrect AnswerIncorrect Answer
DNot related to each otherCorrect AnswerIncorrect Answer
ENone of theseCorrect AnswerIncorrect Answer
Solution
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.