Q7 of 15 Page 5

How a fall in price of tea will affect an equilibrium price of coffee? Explain the chain effect.

Tea and coffee are substitute goods. A fall in price of tea will directly influence the equilibrium price and quantity of coffee. As a result the demand curve of tea will shift to the right. Price of tea will automatically increase the demand of tea but will decrease the demand of coffee.


TEA


P↓ = D↑


Therefore, there will be decrease in the demand of coffee.



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