Question 1

The below table list the cross price elasticities of various goods. Use this information to answer the questions that follow: Cross-price elasticity Refrigeration and kilowatts of electricity usage -0.34 Coke and Pepsi +0.63 Vehiclesicars and fuel usage -1.28 Chicken Licken and KFC chicken wings +0.82 Butter and Margarine +1.54 Source: Examiner QUQEUQDJ. (20 marks) 1.1 1.2 1.3 1.4 1.5 Explain the signs of a cross price elasticity. What does it imply about the relationship between the two (2) goods for each sign? (4) Based on the information in the table above, calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded. (4) Based on the information in the table above, calculate how a 10% decrease in the price of fuel affects the quantity of vehiclesicars demanded. (4) Based on the information in the table above, compare the absolute values between the positives (Coke & Pepsi with Butter 8: Margarine) and also between the negative (Refrigeration 8t kilowatts of electricity and vehiclesXcars & fuel usage). (4) Explain what it means to have a price elasticity of zero. Provide an example. (4)