21) Suppose that coffee and tea are substitutes and a new species of coffee plan

Question

21) Suppose that coffee and tea are substitutes and a new species of coffee plants discovered which grows at a lower cost than previous varieties of coffee. Whi the following will occur in equilibrium to the price and quantity of tea? ee. a. The price of tea falls. The quantity of tea falls. b. The price of tea falls. The quantity of tea rises. c. The price of tea rises. The quantity of tea falls. d. The price of tea rises. The quantity of tea rises. e. The price of tea rises. The quantity of tea changes in an uncertain direction.

Explanation / Answer

Answer :- Option a). The price of tea falls. The quantity of tea falls.

Explanation :- The demand of coffee will increase with the decrease in the price of coffee due to the discovery of new species of coffee resulting in the lower cost involved in growing coffee. Due to increase in demand of coffee, The demand of tea will decrease (fall). Accordingly, The demand curve of tea will shift leftwards. Due to the leftward shift of demand curve for tea, The equilibrium price as well as equilibrium quantity for tea will fall (decrease) only.

Conclusion :- Option a).

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