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Assume that demand for product A can be expressed as QA = 500 - PA + 3PB and demand for product B can be expressed as QB = 300 - 2PB + PA. Currently, market prices and quantities for these products are PA = 5, PB= 2, QA = 481, and QB = 301.
a. Suppose the price of product B increases to 3. What happens to quantity demanded of both products?
b. Calculate the arc cross-elasticity between product A and product B using prices for product B of 2 and 3.
c. Are these goods substitutes or complements?
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