Question: Suppose we have the following equations:

Demand Curve: Q = -1450 – 25P + 12.5P_X + 0.2 Y

Supply Curve: Q = -100 + 75P - 25P_X – 12.5P_Z + 10R

Where Q = quantity

P = price

Y = income

R = rainfall

P_X = price of product X

P_Z = price of product Z

a. Is this product a normal good or inferior good? Explain.

b. Relate products X and Z to this product.

c. Suppose The prices of goods X and Z are $5 and $8 respectively and Y = 8,000 and R = 20. Provide the demand and supply curves and calculate equilibrium.

d. Calculate consumer surplus for part (c)

e. Comment on whether a surplus or shortage exists when P = $1.25.

f. Suppose the new demand and supply curves are as follows:

Demand Curve: Q = -1250 – 25P + 12.5P_X + 0.2 Y

Supply Curve: Q = 100 + 75P - 25P_X – 12.5P_Z + 10R

Find the new equilibrium. Illustrate what happened when comparing to the answer in part c.