1-

a. The value of cross price elasticity of demand between goods X and Y is 1.40. Characterize X and Y as substitutes or complements. Please explain

b. The cross price elasticity of demand between goods X and Z is -1.95. Characterize X and Z as substitutes or complements. Please explain.

2- A 10 percent increase in the price of sugar increases the amount of honey demanded by 8 percent.

a. What is the cross price elasticity of demand?

b. Are sugar and honey complements or substitutes? Please explain

c.How to interpret the cross price elasticity calculated in part a?

3- The following table illustrates how many guns and how much butter a country can produce using all available resources

Guns Butter

0 700

100 600

200 500

300 400

400 300

500 200

600 100

700 0

1- Plot this production possibilities curve (PPC).

2- Does the PPC illustrate the law of increasing additional cost? Please explain.