Ch01 Section 1.5: Supply and Demand Analysis A demand of a certain good is given by (Demand function) Q = -20P + 0.04Y + 4T + 3Pr = f(P; Y, T, Pr) where Q and P denote the quantity and price of the good, Y is income, T is taste, and Pr is the price of a related good. Assume that the values of Y, T,and Pr are fixed. The variable Q is called the dependent variable, and the variables, P, Y, T, and Pr, are called the independent variables. The independent variables whose values are fixed, and no longer a variable, are called the exogenous variables. (a) Calculate Q when P = 8, Y = 1000, T = 15, and Pr = 30. The demand function can also be written as a function of P, such as (Inverse demand function) . P = g(Q; Y,T, Pr) The two functions, f and g, are said to be inverse functions to each other. Given the relationship between these variables, P and Q are called endogenous variables, since they are allowed to vary and are determined within the model. The remaining variables, Y, T, and Pr, are called exogenous variables, since they are constant and are determined outside the model. (b) Is the related good, a substitute or a compliment? (c) The exogenous variables are now fixed at Y = 2000, T = 10 and Pr = 5. Sketch the demand curve with Q on the horizontal axis and P on the vertical axis