Economic World View

(a) In relation to the products they produce, why might it be important for business managers to know the price elasticity of demand, the cross-price elasticity of demand and the income elasticity of demand? (In your answer, explain in words what each elasticity means, say how a manager might measure each, and provide examples of "high" and "low" elasticities in each case.) (15 marks)

(b) "When demand increases, price and quantity supplied both rise in response by the same percentage amount." Do you agree with this statement? If not, why not? Illustrate your answer with relevant examples. (10 marks)

(c) Why is it possible to have an absolute advantage in producing a good without having a comparative advantage? Why is it possible to have a comparative advantage in producing a good without having an absolute advantage? Why do economists think the principle of comparative advantage is so important? (15 marks)

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