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QUESTION

1.) Suppose that D = 0.667 and F D = 0.75 for given country: a) Are import demands elastic or inelastic in this case? b) Does the Marshall-Lerner

1.)   Suppose that εD = 0.667 and εFD = 0.75 for given country:

a)     Are import demands elastic or inelastic in this case?

b)     Does the Marshall-Lerner condition hold? How do you know?

c)     Suppose that domestic price of this country's imports rise by 10% following a devaluation. What will happen to the quantity that it imports?

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