Indicate how a decrease in the cost of producing oranges (a substitute for apples) will affect the equilibrium price and the equilibrium quantity in the market for applesa. increase; increaseb. increase; decreasec. decrease; decreased. decrease; increase

Answer: Option (c) is correct.

Explanation:

Oranges and Apples are substitute goods. There is a direct relationship between the demand of a particular good and price of its substitute good.

This states that an increase in the price of its substitute good will generally lead to increase the demand for a particular good.

In our case, the cost of producing oranges decreases, as a result there is a reduction in the price level of oranges. Hence, this will lead to reduce the demand for apples though its price remains the same.

This will shift the demand curve for apple leftwards, as a result both equilibrium price and equilibrium quantity decreases in apple market.