Question

Suppose, a producer of tea finds that the price of coffee has increased. Explain how he would react to the situation.​

Answer 1

Answer:

he would increased his price

Explanation:

because if the coffee rate is increasing so he should increase tee rate beacause most of the people of India like tee

Answer 2

Answer:

Coffee and tea are substitute goods. Let us assume that the price of coffee increases. This will cause a shift in demand curve for tea to the right as shown in Fig, D is the initial demand curve and S is the initial supply curve related to tea.E is the initial equilibrium where supply and demand curves intersect each other. OP is the equilibrium price and OQ is the equilibrium quantity of tea. When the price of coffee increases, demand curve (for tea) shifts forward as indicated by D

1

. Consequently, equilibrium price (of tea) increases from OP to OP

1

and equilibrium quantity increases from OQ to OQ

1

.

In case price of coffee decreases, demand curve for tea would shift to the left. Consequently, new equilibrium would indicate a fall in equilibrium quantity as well as a fall in equilibrium price.