A firm’s demand function for good Z is estimated as follows: Qz = 4500- 1/8 Pz + 1/5 Pa – 1/9 Pb + 2Y Where: Pz is the price of good z, Pa is the price of good a, Pb is the price of good b, and Y is income. (i) Justify whether the law of demand is valid here. [5 marks] (ii) According to theories, explain the two main reasons why the law of demand is always valid? [5 marks] (iii) Is good Z a normal good? [5 marks] (iv) Explain whether goods a and b are related to good z. [5 marks]

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A firm’s demand function for good Z is estimated as follows:
Qz = 4500- 1/8 Pz + 1/5 Pa – 1/9 Pb + 2Y
Where:
Pz is the price of good z,
Pa is the price of good a,
Pb is the price of good b, and
Y is income.
(i) Justify whether the law of demand is valid here. [5 marks]
(ii) According to theories, explain the two main reasons why the law of demand is always
valid? [5 marks]
(iii) Is good Z a normal good? [5 marks]
(iv) Explain whether goods a and b are related to good z. [5 marks]

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