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Consider the following demand function for orange: QO = 100 - PO + PA + 5I + 2T, where QO is quantity of orange demanded, PO is the price of an orange, PA is the price of an apple, I is income, and T is taste for oranges. Let the initial price of an apple be $1, the initial income be $100, and the initial taste be 5.
a) What is the quantity of oranges demanded at the following prices: $1, $2, $3, $4, $5, $6, $7, $8, $9, and $10? Plot the demand curve.

b) Now, suppose with other things remaining constant, income increases to $200. Plot the demand curve for the prices in part (a). Did the demand curve shift relative to that in part (a)?

c) Now, suppose with other things remaining constant (i.e. taste and income are at original values), the price of an apple increases to $2. Plot the demand curve for the prices in part (a). Did the demand curve shift relative to that in part (a)?

d) Now, suppose with other things remaining constant (i.e. income and price of apples are at original values), taste increase to 10. Plot the demand curve for the prices in part (a). Did the demand curve shift relative to that in part (a)?

e) Going back to the demand curve in part (a), suppose the current market price for an orange is $5, what happens to the demand curve for oranges if the price goes to $7 per orange? That is, does the demand curve shift or is there a movement along the demand curve?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9482277

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