Question

The demand equation for widgets has been estimated as:

Q_W = 3200 - 4 P_W + 0.160 I - 1.8 P_R

where Q_W is the quantity demanded of widgets, P_W is the price of widgets, I is the average income of dollars of consumers in the market, and      P_R is the price of radgets.

            Holding other factors constant, an increase in average consumer incomes of $300 would produce a change in the quantity demanded of widgets of:

                        A. +48             B. +1875                     C. - 540           D. – 30            E. +512

Answer 1

ANswer
A change coefficient in function is found by differentiation
dQw=dI=0.160 ...... differentiating demand curve with respect to income
it shows a change in income changes quantity in the proportion of 0.16.

Change in quantity=(dQw/dI)*change in income
=0.16*300
=48
the quantity demanded increases by 48 units
Option A