"Because Apples and Oranges Are Substitutes, an Increase in the Price

question 109

Multiple Choice

"Because apples and oranges are substitutes, an increase in the price of oranges 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 following correctly comments on this statement?

• A)The statement will be true if consumer tastes for apples and oranges do not change.
• B)The statement is false because a change in the price of apples would not change the demand for apples.
• C)The statement is false because oranges are inferior goods; apples are normal goods.
• D)The statement is false because one cannot assume that apples and oranges are substitutes for all consumers.

---

Definitions:

Voting Shares

Shares of stock that grant the holder the right to vote on corporate matters.

Cost Method

Accounting for investments where the investor does not exercise significant influence, recording the investment at initial cost and recognizing income only when dividends are received.

Unrealized Intercompany Gain

Profits recorded on the books resulting from transactions among subsidiaries that are not realized until sold to an external party.

Income Tax Expense

The total amount of income tax a company or individual owes to the tax authorities for the current fiscal year.