Question

Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that "the enormous imports of cheap bananas into the United States tend to curtail the domes-tic consumption of fresh fruits produced in the United States.". a. Was the apple producer assuming that apples and bananas are substitutes or complements?

Answer 1

Answer:

The apple producer is suggesting that apples and bananas are substitutes.

Explanation:

In economic theory, a good is substitute for another good when the consumer can replace one with the other and derive the same or a very similar utility. In this case, if consumer demands more of one good, decreases its demand for the other good.

In contrast, when two goods are complements, the increase of demand of one good, increases the demand of the other one, since they are usually consumed together.

The apple producer is arguing that the cheap price of bananas induces consumers to prefer this fruit over other similar fruits decreasing the demand for apples, which acts as a substitute of bananas.