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(a) Consider the following information for a product A and a related product B in consumption: Quantity of A traded Price of A Income of

(a) Consider the following information for a product A and a related product B in consumption:

Quantity of A traded Price of A Income of Consumers Price of B
1,200 $1.00 $10,000 $1.00
1,800 $0.90 $8,000 $0.80

(i) Determine the price elasticity of demand for product A, the income elasticity of demand for product A and the cross-price elasticity of demand between product A and product B using the mid-point formula. Based on the elasticities, explain how you classify product A in terms of its price and income elasticities of demand and also the relationship between product A and product B.

(ii) Given that the price of product A decreases by 5%, consumers' income decreases by 3% and the price of product B increases by 4%, compute the effect on the revenue from product A, assuming each change occurs separately.

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