1. Consider the market for pineapples in a hypothetical economy.

a.) Assume that the price elasticity of demand for pineapples is equal to - 0.5. What will happen to the quantity demanded if the price of pineapples goes up by 25%?

b.) Now assume the consumers can also easily cross the border and buy pineapples abroad. What will happen to the equilibrium price and quantity of pineapples in the domestic market if the production cost of foreign pineapples goes up? Show your answers on a graph. (Be careful: illustrate the domestic market!)