How to calculate y when given the demand function?

Question

Assume an individuals femand function for a good is x = 5 + m/2p where m is income and p is price of x.

Let m = 1000 and p = 8. The individuals demand for x is 5 + 1000/16 = 67.5.

The tutorial I am doing now mentions that this is on y = 460, and then uses slutskys equation to calculate substitution effect.

My question is, what is y? And how did the tutorial arrive at y = 460?

I know this sounds obvious, but the tutorial should define its terms. $y$ usualy means income, but it seems that is $m$ here. It might mean the quantity of the other good. — Trurl, Oct 27 '16 at 13:45

score 1 · Answer 1 · answered Jan 23 '17 at 08:50

Imagine a two commodity world (X and Y) where the demand for good X is given by

$x = 5 + \displaystyle\frac{m}{2p}$

$m$ denotes the income and $p$ is the price of X.

When $m = 1000$ and $p = 8$, the demand for X is given by

$5 + \displaystyle\frac{1000}{16} = 67.5$

and the expenditure on X is equal to $p\times x = 67.5 \times 8 = 540$.

So, the remaining money is spent on Y and equals $(1000 - 540) = 460$.

1 Answers1