Question : Which of the following goods is likely to have a positive cross elasticity of demand with apples?
Option 1: Oranges
Option 2: Bananas
Option 3: Beef
Option 4: Cereal
Correct Answer: Oranges
Solution : The correct answer is (a) Oranges.
A positive cross elasticity of demand means that two goods are substitutes. In this case, a positive cross elasticity of demand with apples indicates that when the price of apples increases, the quantity demanded of oranges also increases, or vice versa.
Oranges are likely to have a positive cross elasticity of demand with apples because they are both fruits and can serve as substitutes for each other. When the price of apples rises, consumers may switch to purchasing oranges instead, leading to an increase in the quantity demanded of oranges.
Bananas, beef, and cereal are not direct substitutes for apples and are therefore less likely to have a positive cross elasticity of demand with apples.
