Question

Pam sees that the price of bananas has risen in the grocery store. All else equal, she decides to buy more tangerines than she normally purchases. From the information given, you might conclude that:a. tangerines and bananas are complements.
b. tangerines are an inferior good.
c. tangerines and bananas are substitutes.
d. bananas are a luxury good.

Answer 1

Answer:

Option (c) is correct.

Explanation:

Given information states that bananas and tangerines are substitute goods. We know that the cross price elasticity of substitute goods is positive which means that there is a positive relationship between the price of one good and the quantity demanded for substitute good.

Therefore, in our case as the price of bananas increases and all the other factors remains constant then as a result the quantity demanded for tangerines increases.