The demand for apples is given by the following equation:
QA = 75-5PA + Po + 21
Where PA is the price of apples, Po is the price of oranges, and I is the average consumer income. Note that this is not a conventional demand curve; it allows you to see how other factors influence the demand for apples. Given this:
a. Assume Po= 5 and I = 10. What is the equation for the inverse demand curve? What is the choke price?
b. Using the demand curve from part a, what is the quantity of apples demanded when PA=5? PA = 10?
c. Assume the price of oranges increases from 5 to 10, while incomes are unchanged. What is the new inverse demand curve and choke price? Has there been a change in the demand for apples, or a change in the quantity demanded for apples?
d. Based on the demand equation, are apples and oranges compliments or substitutes? How can you tell? Further, are apples normal or inferior goods? How can you tell?