Question

Questions 1-7 are parts of this question

Grace’s demand for almonds is: QA = 50 +/- 3PA +/- 2PC +/- 0.01I (you will need to determine the proper signs for each term based on the information in the problem)

PA is the price of almonds, PC is the price of carrots and I is her income. Assume that almonds and carrots are complements and almonds are an inferior good to Grace.

What is the sign of the coefficient on PA in Grace’s demand curve? (1)

What is the sign of the coefficient on PC in Grace’s demand curve? (1)

hat is the sign of the coefficient on I in Grace’s demand curve? (1)

How much consumer surplus will Grace receive from the almonds she buys in question 4? (Hint: You will need to provide an exact dollar amount, but drawing Grace’s demand curve might help you visualize how to answer) (2)

What is Grace’s price elasticity of demand for almonds? (5)

Using your answer to question 6, will Grace spend more or less on almonds if their price falls? Clearly state why your answer to question 6 tells you whether Grace spends more or less in response to a decline in price. (3)

Answer 1

We are given with demand function with Indefinite signs of the coefficients