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When the price of strawberries is high in the winter you purchase apples, but in the summer when the price of strawberries drops you purchase strawberries.

a) Substitute goods
b) Complementary goods
c) Inferior goods
d) Normal goods

1 Answer

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Final answer:

The student's behavior of purchasing apples when the price of strawberries is high, and vice versa, is an example of the substitution effect, which indicates they are using apples as substitute goods for strawberries.

Step-by-step explanation:

When you switch from purchasing strawberries to apples depending on the season and price, it exemplifies the concept of substitute goods. Substitute goods are products that can be used in place of one another; the consumption of one increases when the price of the other rises. This substitution effect occurs because the higher price of strawberries prompts the purchase of apples instead. However, when strawberry prices fall in the summer, you prefer them over apples, showcasing the substitution towards strawberries from apples.

The income effect is a separate concept, which does not apply directly to this situation but describes how a change in the price of a good affects your overall purchasing power. For example, if strawberries' prices go down, you have more buying power and could potentially buy more goods overall.

Contrary to substitute goods, complementary goods are purchased together, and a price increase in one will likely decrease the quantity consumed of both. Inferior goods are those for which demand decreases as income increases, which is not the case here, while normal goods have demand that rises with increases in income.

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