Answer to Question #219874 in Microeconomics for Nitin Bhawani

Question

Emily has an income of Y. Emily must have some minimum quantities of both food (Q⁰₁) and non-food (Q⁰₂) for survival. Any remaining income – after buying the necessary amounts of the two - she spends proportionately on food (say, 1/3-rd) and non-food (say, 2/3-rd). What will be Emily’s demand equations for food and non-food?

Answer 1

Let the price for food be P₁

Let the price for non food be P₂

Let the remaining income be y

In linear demand the demand equation is given by;

Qd = a – b(P)

 a= y which is the remaining income

demand function for food(f) is

Q_f =  1/3 y - b P₁

demand function for non-food (nf) is

Q_nf =  2/3 y - b P₂