CA Foundation · Business Economics · Theory of Demand and Supply
When the price of coffee increases, the demand for tea rises in the Indian market. This relationship between coffee and tea illustrates which type of good?
Tea and coffee are substitute goods. When the price of coffee rises, consumers switch to the relatively cheaper alternative (tea), causing tea's demand to increase. Substitutes have a positive cross-price elasticity of demand.
- AComplementary goods
- BSubstitute goodsCorrect
- CNormal goods
- DInferior goods
Explanation
Substitute goods are those where an increase in the price of one leads to an increase in demand for the other, as consumers switch their consumption. Coffee and tea compete for the same want (hot beverage) in Indian households. Complementary goods move in the same direction (tea and sugar); normal goods respond to income changes; inferior goods see demand rise when income falls—none fit this scenario.
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