If the price of tea falls, demand for coffee will a)increase b)decrease c)remain same d)None of theseCorrect answer is option 'B'. Can you explain this answer?

Question

If the price of tea falls, demand for coffee will  a)increase b)decrease c)remain same  d)None of theseCorrect answer is option 'B'. Can you explain this answer?

Answer

If the price of tea falls, demand for coffee will decrease as tea and coffee are substitute goods. Hence, when the price of tea falls, consumers will spend more on tea and thus the demand for coffee will fall.

Answer

When the price of tea falls,consumers will spend more on tea and thus demand for coffee will decrease,bcoz tea and coffee are substitute goods.

Answer

Explanation:

When the price of tea falls, it affects the demand for coffee in the following ways:

Substitution Effect:
- When the price of tea falls, it becomes relatively cheaper compared to coffee.
- Consumers may choose to switch from consuming coffee to consuming tea because of the lower price.
- This leads to a decrease in the demand for coffee.

Income Effect:
- When the price of tea falls, consumers' purchasing power increases.
- They have more disposable income to spend on other goods, including coffee.
- However, the income effect is relatively smaller compared to the substitution effect.
- Hence, the decrease in demand due to the substitution effect outweighs the increase in demand due to the income effect.

Complementary Effect:
- Tea and coffee are often considered complementary goods, meaning they are consumed together.
- When the price of tea falls, it may lead to an increase in the consumption of tea.
- However, this increase in tea consumption does not necessarily lead to an increase in coffee consumption.
- Therefore, the complementary effect does not significantly impact the demand for coffee.

Overall Impact:
- The decrease in demand for coffee due to the substitution effect is greater than any potential increase in demand due to the income effect or complementary effect.
- Therefore, when the price of tea falls, the demand for coffee decreases.

Conclusion:
The correct answer is option B: decrease. When the price of tea falls, the demand for coffee decreases due to the substitution effect outweighing any potential increase in demand due to the income effect or complementary effect.

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