Suppose that buyers consider apples and oranges to be substitute goods. Which of the following statements is true?
Statement I:
A fall in the price of oranges and a rise in the quantity of apples sold can be explained by exceptionally good weather (which increases production) in apple growing areas.
Statement II:
A fall in the price of oranges and a rise in the quantity of apples sold can be explained by exceptionally good weather (which increases production) in orange growing areas.
Statement III:
A fall in the price of oranges and a rise in the quantity of apples sold can be explained by the removal of a tax on apples.
Statement I is true. If good weather increases production of apples, then the supply of apples increases, leading to a decrease in the price of apples and an increase in the quantity of apples sold. Buyers may then substitute oranges for apples, as oranges have become relatively more expensive compared to apples.
Statement II is false. Exceptionally good weather in orange growing areas would increase the supply of oranges, which would lead to a decrease in the price of oranges and an increase in the quantity of oranges sold, not apples.
Statement III is false. The removal of a tax on apples would lead to a decrease in the price of apples, which would increase the quantity of apples sold, but it would not necessarily lead to a decrease in the price of oranges or an increase in the quantity of oranges sold.
Statement I is true. If there is exceptionally good weather in apple growing areas, it can increase apple production. This, in turn, can lead to a fall in the price of apples and an increase in the quantity of apples sold. As buyers consider apples and oranges to be substitute goods, a fall in the price of oranges can lead buyers to shift their preference towards buying more apples, resulting in a rise in the quantity of apples sold.
Statement II is not necessarily true. If there is exceptionally good weather in orange growing areas, it might increase orange production. However, this would not directly explain a fall in the price of oranges and a rise in the quantity of apples sold. It is possible that other factors or market conditions are influencing the change in the quantity of apples sold.
Statement III is not necessarily true. The removal of a tax on apples would lower the price of apples, which could potentially increase the quantity of apples sold. However, it does not directly explain the fall in the price of oranges. The relationship between the price of oranges and the quantity of apples sold would still depend on the substitutability of these goods and other market conditions.
To determine which of the statements is true, we need to understand the concept of substitute goods and how changes in price and quantity can be explained.
Substitute goods are goods that can be used in place of each other, and when the price of one increases, the demand for the other may increase. In this case, buyers consider apples and oranges to be substitute goods.
Statement I suggests that a fall in the price of oranges and a rise in the quantity of apples sold can be explained by exceptionally good weather in apple growing areas. This statement is not necessarily true because good weather in apple growing areas would primarily affect apple production, not orange production. The rise in the quantity of apples sold would most likely be due to factors other than the weather in orange growing areas.
Statement II suggests that a fall in the price of oranges and a rise in the quantity of apples sold can be explained by exceptionally good weather in orange growing areas. This statement is more likely to be true as good weather in orange growing areas would increase orange production, leading to a fall in orange prices. As a result, buyers may choose to buy more apples, leading to a rise in the quantity of apples sold. Therefore, this statement is plausible given the assumption that apples and oranges are substitute goods.
Statement III suggests that a fall in the price of oranges and a rise in the quantity of apples sold can be explained by the removal of a tax on apples. This statement is also plausible because if a tax on apples is removed, it would lower the price of apples, making them more attractive to buyers compared to oranges. Consequently, the quantity of apples sold may increase as a result. Therefore, this statement is plausible given the assumption that apples and oranges are substitute goods.
In summary, statement II and statement III appear to be true or at least plausible explanations for the fall in the price of oranges and the rise in the quantity of apples sold.