21 Jul ARE ORGANIC AND CONVENTIONAL CARROTS COMPLEMENTS OR SUBSTITUTES?
5PO +PC +2I where PO is t Show more The demand for organic carrots is given by the following equation: QDO =755PO +PC +2I where PO is the price of organic carrots PC is the price of conventional carrots and I is the average consumer income. Notice how this isnt a standard demand curve that just relates the quantity of organic carrots demanded to the price of organic carrots. This demand function also describes how other factors affect demand namely the price of another good (conventional carrots) and income. a) Draw the demand curve for organic carrots when PC = 5 and I=10. b) Using the demand curve drawn in (a) what is the quantity de- manded of organic carrots when PO = 10? c) Using the demand curve drawn in (a) what is the quantity de- manded of organic carrots when PO = 5? d) Now suppose PO = 10 and PC = 15 (I remains at 10). What is the quantity demanded of organic carrots? Compared with your answer in (b) has there been a change in demand or quantity demanded? Demonstrate using a graph. e) What happens to the demand for organic carrots when the price of conventional carrots increases? Are organic and conventional carrots complements or substitutes? f) What happens to the demand for organic carrots when the average consumer income increases? Are carrots a normal or an inferior good? Show less
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