1)The answer is option c- world interest rate

If there is free access to world financial markets, investment in all small open economies will depend on world interest rate

2)Part a) Let us take the example of Pepsi as our product.

Name of the product = Pepsi

Part b) Demand and Supply graph and market clearing price : Market clearing price is equilibrium price.

Part c) Description of product : Pepsi is a beverage generally consumed along with fast food products.

Part d) Demand elasticity :

The elasticity of demand for a commodity is the rate at which quantity changes due to change in its price. Price elasticity of pepsi relatively elastic which means that even a small change in price might lead to a big change in quantity demanded.

Reason for this is - The price elasticity of demand for Pepsi will be elastic because you can buy Coca-Cola(availability of almost perfect substitutes) instead. If there are no good substitutes, the price elasticity of demand tends to be inelastic.

Part e) 3 Substitutes : Coca cola, Mountain dew, 7up etc.

3 Complements : French fries, hamburger, pizza,pasta etc.

Complements are goods that are consumed together. Substitutes are goods where you can consume in place of the other.

Part e) Supply elasticity : The elasticity of supply of coca cola is relatively inelastic. It comes from the competition that exists in the soda market. If the suppliers will make even small change in terms of price, the consumers has close substitutes available such as coca cola therefore, they may lose large market share. Therefore, suppliers will avoid making such price changes due to the level of the competition in this market.

And if due to some other reasons, price changes,in the market, then also suppliers' change in quantity supplied will not be much generally to keep the market share intact.

Part f) Why would the demand curve shift :

Shift to the right :When the demand for the product increases,price being constant, due to change in other factors such as income, change in preference, life style etc.

Shift towards the left : When the demand for the product decrease, price being constant, due to some other factors. For eg. decrease in income, preference change, when it was found that pesticides content is found in pepsi demand reduced.

Part g) Shift in supply curve :

Left shift : Upward shift takes place when the supplier is able to supply less at the same price. For eg. decrease in supply of sugar(input) due to increase in price or any other reason might result in decrease in production of pepsi. Therefore, supply curve will shift to the left.

Right shift :Shift to the right means when supplier is able to supply more at the same price. For eg: any technological improvement, or decrease in price of input causing more production at the same cost.

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