Question 2

(a) Explain the concept of cross elasticity of demand and describe the main function of this concept.

[10 marks]

(b) Let's just say that the price of product X is RM5 and the quantity bought is 100 units. Assume that the price of product Y increases from RM3 to RM5. The quantity bought of product X decreases to 80 units.

Calculate the cross elasticity of demand between products X and Y. Determine the relationship between the two products.

[15 marks]

Question 3

Using the AD-AS diagram, explain the effect of the following on price and real income.

(a) Prediction of World War 3 next year

(b) Consumers are optimistic about the economy

(c) The government has increased sales and service tax

(d) The minimum age for working has been reduced

Question 4

[25 marks]

There are three main types of foreign exchange rate systems used globally. Explain all three of them and also indicate which countries use them.

[30 marks]