Intermediate MicroeconomicsHomework Set 4: DemandSolutionsExercise1Percy consumes cakes and ale. His demand function for cakes isqc=m-30pc+ 20pa,wherepais the price of ale, andpcis the price of cakes, andqcis his consumption ofcakes. Percy’s income is $100, and the price of ale is $1 per unit.(a) Is ale a substitute or a complement for cakes?(b) Write an equation for Percy’s demand function for cakes with the values of incomeandpagiven above.(c) Write an equation for Percy’s inverse demand function for cakes with the valuesof income andpagiven above. At what price (of cake) would Percy buy 30 cakes?Use blue ink to draw Percy’s inverse demand curve for cakes.(d) Suppose that the price of ale rises to $2.50 per unit and remains there. Write anequation for Percy’s inverse demand for cakes. Use red ink to draw in Percy’s newinverse demand curve for cakes.Answer:
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