Question

"Because apples and oranges are substitutes, an increase in the price of or¬anges will cause the demand for apples to increase. This initial shift in demand for apples results in a higher price for apples; this higher price will cause the demand curve for apples to shift to the right." Which of the follow¬ing correctly comments on this statement?a. The statement is false because a change in the price of apples would not change the demand for apples.b. The statement is false because one cannot assume that apples and oranges are substitutes for all consumers.c. The statement will be true, if consumer tastes for apples and oranges do not change.d. The statement is false because oranges are inferior goods; apples are normal goods.

Answer 1

Answer:

The correct answer is option a.

Explanation:

Apples and oranges are substitutes. An increase in the price of oranges will cause the demand for apples to increase. This is because people will prefer a cheaper substitute. This increase in the demand for apples will cause its demand curve to shift to the right.

The rightward shift in the demand curve will cause the equilibrium price to increase. But this change in price will not cause a change in demand. The change in price affects only the quantity demanded. Change in demand happens because of a change in other factors.

So, the given statement is not correct.