Assume the following:
Consider Jenny's demand function for apples: Qa = 10 - Pa + 2Pp + Y Where,
Qa = quantity of apples Jenny demands
Pa = price of apples that Jenny faces;
Pp = price of pears
Y = Jenny's income
Consider initially that Pp= $1 and Y = $10
Use the information above to answer the following questions:
a) Draw Jenny's demand function for apples
b) Show how this demand function for apples changes if Pp increase to $2 but Y falls to $8 at the same time. Draw the new demand curve and show workings
c) Using the initial income (Y) of $10 and a price of apples (Pa) of $1, and applying the change in price of pear (Pp) from $1 to $2 - are apples and pears substitutes or complements for Jenny (use the midpoint formula)? Show workings
d) Using the initial price of pears (Pp) of $1 and a price of apples (Pa) of $1, and applying the change in income from $10 to $8 - Is apple a normal or an inferior good for Jenny (use the midpoint formula)? Show workings