Suppose a Consumer Can Choose to Consume Either Apples or Oranges

question 204

Multiple Choice

Suppose a consumer can choose to consume either apples or oranges. Which of the following is likely to occur if the price of each fruit increases by 15 percent?

• A) The consumer will substitute apples for oranges.
• B) The income effect of the price change will be positive.
• C) The substitution effect of the price change will be zero.
• D) The consumer will demand more of both of the goods.
• E) The consumer will substitute oranges for apples.

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Definitions:

Differentiated Oligopoly

A market structure in which a few firms offer products that are similar but not perfect substitutes, allowing for some pricing power.

Collusion

An agreement between competing firms to control prices or exclude entry of a new competitor in the market, often in violation of antitrust laws.

Sequential Game

A strategic interaction (game) between two or more parties (players) in which each party moves (makes a decision) in a predetermined order (sequence).

Economic Profits

The profit a company makes after deducting both its explicit and implicit costs.