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What does the decrease in the price of coffee (other things being equal) result in if coffee and tea are substitutes?
A. Downward movement along the demand curve for tea.
B. Downward movement along the demand curve for tea.
C. Upward movement along the demand curve for tea.
D. Rightward shift in the demand curve for tea.

Asked by Merlin, Last updated: Feb 03, 2019

This question is part of

Economics Quiz 3 Microeconomics

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4 Answers

John Adney

John Adney

Answered on Jan 20, 2017

There is no correct answer to this question. If coffee and tea are substitutes and the price of coffee goes down, then the demand for tea will decrease, meaning a leftward shift in the demand curve for tea. When the price of substitutes change, there are shifts in demand of the good analyzed, not changes along the curve.
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Mary

Mary

Replied on Apr 16, 2018

You're right Adney, because the price of tea did not change. So it should be a leftward shift and not an upward movement as this will mean an increase in price of tea.

jashon

Both A and B are the same, and shouldn't the decrease in the price of coffee (a substitute) cause a leftward shift in the demand for tea as its demand will decrease?
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Venuste

The decrease in price for coffee (a substitute for tea) will make consumers demand more coffee than tea. Remember that demand curve runs from the top left corner to the bottom right corner and quantity demanded is on thex-axis ( horizontal axis). Moreover, numbers increase as we move to the right-hand side of the x-axis. This means that if thedemand curve for coffee moves downwards along the demand curve, quantity demanded will be increasing and vice versa. Note that, the movement is happening along the demand curve, the curve itself is not swinging up or down.If the downward movement happens along the demand curve for tea, it means people are buying more tea than coffee because downward movement means increasing in quantity. This brings us to the conclusion that,C is the right answer to the question, not B.
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Mary

Mary

Replied on Apr 16, 2018

I think I agree with Adney, that the correct answer to this question is not among the options, reason being that an upward movement along the demand curve for tea would mean an increase in the price of tea, but the question states that 'other things being equal'

John Smith

John Smith

Answered on Sep 11, 2016

Downward movement along the demand curve for tea.
With a decrease in the price of coffee people will want to buy more coffee; because coffee and tea are substitutes, they will buy less at possible prices for tea.
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