1.) The following demand function relates quantity demanded per month of a good (lets call it good A) to the price of the good (P), consumer average income (M), prices of related goods (Pr), expected future price (Pe), population in the market (N), and consumer tastes and preferences ( t):

QD = 105-5P+.01M+8Pr+2Pe+.5N+t

a) Is good A a normal good or inferior good? How do you know? b) Is the related good in the demand function a complement or a substitute? How do you know? c) Explain in words what the coefficient on M tells us about the relationship between consumer average income and quantity demanded.

d) Does the demand function satisfy the law of demand? Why or why not? e) Assume the following values for the variables in the demand function other than P: M = 25,000, Pr = 8, Pe = 15, N = 10,000, t= 1. Write out the formula for the demand curve for good A. f) What is the own-price elasticity of demand at P = 1,000? g) Is demand elastic, inelastic, or unitary elastic at the price given in f)?

h) Write out the formula for the inverse demand curve and graph it (2 points). i) Show on your graph for part (h) what will happen to the demand curve if there is a drop in average consumer income (M) of $1,000.