Question

AT&T 9:42 AM 1 27% 0, 〈 Back Homework 1 3101... Q Consider the market for pork in Tampa. The general demand function for pork in Florida is estimated to be Qu-205- 20P 0.0003M 17Ps +7P where Qu is the quantity demanded (as measured in units of millions of pounds per year), P is the price of pork (per pound), M is average annual income in Florida, Ps is the price of beef (per pound), and Pc is the price of chicken (per pound) Based on the generalized demand function, a) Does the Law of Demand hold? Why? Explain. b) Is pork considered a normal or an inferior good? Why? Explain. c) Are beef and chicken substitutes or complements to pork? Why? Explain. 2. Assume that average annual consumer income in Tampa is $50,000, price of beef is $ 4 per pound, and the price of chicken is $3 per pound a) Find the direct demand function for pork in Florida. b) Find the inverse demand function for pork in Florida. c) Draw the demand curve for pork in Florida. Clearly mark out any and all intercepts

Answer 1

a) As per the given equation, the law of demand does not true. As per the law of demand, other things remaining the same, there is an inverse relationship between price and quantity demanded. Whereas in given equation, the demand is also affected by the annual income and prices of beef and chicken. This violates the principle of other things being equal. b) Normal goods are those goods which have positive income effect and negative price effect. In the given equation, quantity demanded is positively related to income (M) and negatively related to price (P). Thus it is a normal good. c) Substitute goods are those goods whose demand increases when price of other goods increases In the equation, P_B and P_C are positively related to Q_d. Hence Beef and chicken are substitute goods.

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