Question:

a) Suppose the cross elasticity of demand for products X and Y is +4.6 and for products E and F is -6.2. What can you conclude about the relationship of products X and Y of E and F?

b) The income elasticities of demand for movies, dental services, and clothing have been estimated to be +3.4, +1.0, and 0.5 respectively. Interpret these coefficients. What does it mean if an income elasticity coefficient is negative?

c) Mark's income has increases from $20,000 to $25,000. His sister has observed that his demand for Caribbean vacations has increased by 12% while his demand for McDonalds lunches has decreased by 8%. Calculate Mark's income elasticity of demand for

(i) vacations to the Caribbean, (ii) McDonalds lunches