Answer:
1. if the price of Chevrolet Camaro increases, the demand for Ford Mustangs increases. Conversely, if the price of Chevrolet Camaro falls, the demand for Ford Mustangs falls.
2.If the price of gasoline increases, the demand for Ford Mustangs would fall and if the price of gasoline falls, the demand for Ford Mustangs would increase.
3. if income increases, demand for Ford Mustangs increases and if demand falls, demand for Ford Mustangs falls
Explanation:
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.
Income elasticity of demand measures the responsiveness of quantity demanded to changes in income.
If the absolute value of income elasticity of demand is greater than one, it means demand is elastic.
The income elasticity is given as 3 , it means that demand is elastic. So if income increases, demand for Ford Mustangs increases and if demand falls, demand for Ford Mustangs falls.
Cross price elasticity of demand measures the responsiveness of quantity demanded of good A to changes in price of good B.
If cross price elasticity of demand is positive, it means that the goods are substitutes goods.
Substitute goods are goods that can be used in place of another good.
If the cross price elasticitiy is negative, it means that the goods are complementary goods.
Complementary goods are goods that are consumed together
Because the cross price elasticity between Chevrolet Camaro and Ford Mustangs is positive, it means they are subsituite goods. So, if the price of Chevrolet Camaro increases, the demand for Ford Mustangs increases. Conversely, if the price of Chevrolet Camaro falls, the demand for Ford Mustangs falls.
Because the cross price elasticity of demand between gasoline and Ford Mustangs are negative, they are complementary goods.
If the price of gasoline increases, the demand for Ford Mustangs would fall and if the price of gasoline falls, the demand for Ford Mustangs would increase.
