Suppose there are only two goods, apples and oranges. What happens if the price of each good increases by 15 percent?
A) The consumer will substitute apples for oranges.
B) The consumer will substitute oranges for apples.
C) There is no substitution effect because relative prices have remained constant.
D) Demand for both goods increases.
E) Demand for both goods decreases.

Question

Quizplus · Accepted Answer

When the price of both goods increases by the same percentage, the relative prices remain constant, so there is no substitution effect.

Suppose There Are Only Two Goods, Apples and Oranges