Calculate the arc cross-elasticity between product a and b

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Reference no: EM13921744

1. Gasoline prices increased substantially in 2004 and 2005. What adjustments did people make to minimize the long-term effects of this price increase?

2. Assume that demand for product A can be expressed as QA = 500 - 5PA + 3PB and de- mand for product B can be expressed as QB = 300 - 2PB + PA. Currently, market prices and quantities for these goods are PA = 5, PB = 2,QA = 481, and QB = 301.

a. Suppose the price of product B increases to 3. What happens to the 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?

Reference no: EM13921744

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