The demand function of a good is given by
Q = 1000 − 2P − 0.5P²_A + 0.01Y
where Q, P, P_A and Y denote the quantity demanded, the price of the good, the price of an alternative good and income, respectively.
Find the cross-price elasticity of demand and income elasticity of demand when P = 15, PA = 20 and Y = 3000.
(a) Explain whether the good is inferior, normal or superior.
(b) Use the small increments formula to estimate the change in demand if P increases by 0.5, PA decreases by 0.25 and Y is unchanged.