2. Suppose that when the price of wine rises by 10%, the quantity of beer demanded rises by 3.8%.

a. Compute and categorize the cross-price elasticity of demand of beer with respect to wine.

Exy =

Category:

b. What does the cross price elasticity computed above tell us about the relationship, if any, between beer and wine? Explain.

3. Suppose that when the price of bottled water rises from $1.25 to $1.35 the daily quantity demanded falls from 5,000 to 4,000 bottles.

a. Compute the elasticity of demand for bottled water.

b. Interpret the number you calculated in part (a).

c. If the price of bottle water were to rise by 5%, what would happen to the quantity demanded. Be exact.