Suppose that buyers consider apples and oranges to be substitute goods. Which of the following statements is​ true?

Question

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.

Answer 1

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.