3. When the cost of dough-making machines fell by 10 percent, the demand for bakers fell by 15 percent. What is the cross-wage elasticity of demand for bakers? Are bakers and dough-making machines gross substitute or gross complements?

Gross compliments (substitutes) are inputs in the production process for which the substitution effect is less (greater) than the scale effect. Thus a decrease in the cost of one leads to an increase (decrease) in the demand for the other. Cross elasticity of demand = % change demanded for assistant bakers / % change in cost of doughmaking machines. 15% / 10% = 1.5. Since the coefficient is greater than zero, these are gross substitutes.