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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Coffee and tea are generally treated as substitutes. If the price of coffee rises substantially, what is the most likely effect on the market for tea, other things remaining the same?

The demand curve for tea shifts to the right. Because coffee is a substitute, a higher coffee price makes tea relatively more attractive, so consumers buy more tea at every price of tea. This is a change in demand, not a movement along the existing curve.

  1. AThe demand curve for tea shifts to the rightCorrect
  2. BThe demand curve for tea shifts to the left
  3. CThere is a contraction of demand along the tea demand curve
  4. DThe supply curve of tea shifts to the left

Explanation

A rise in the price of a substitute makes tea relatively cheaper, so consumers switch to tea at every price of tea. This raises demand, shifting the tea demand curve rightward. Option C is wrong because tea's own price has not changed, so the movement is not along the curve.

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