Assuming coffee and tea are substitutes, a decrease in the price of coffee, other things being equal, results in a (an) a. downward movement along the demand curve for tea. b. leftward shift in the demand curve for tea. c. upward movement along the demand curve for tea. d. rightward shift in the demand curve for tea.

Short Answer

Expert verified
b. A leftward shift in the demand curve for tea.

Step by step solution

01

Understand the relationship between substitutes

When two goods are substitutes, consumers can replace one good with the other to satisfy their needs. In this case, coffee and tea are substitutes, implying that they can be interchanged to meet the consumer's need for a hot beverage. When the price of a substitute good changes, it impacts the demand for the other good.
02

Analyze the effect of a decrease in the price of coffee

When the price of coffee decreases, consumers find it more attractive to buy coffee instead of tea. This means that, given the same level of income and the same prices of other goods, people would be more inclined to purchase coffee as a substitute good for tea, leading to a decrease in the quantity of tea demanded.
03

Match the analyzed effect with the available options

Now, we need to find which of the given options correctly describes the effect of a decrease in the price of coffee on the demand for tea: a. A downward movement along the demand curve for tea would not result from a change in the price of a substitute good like coffee. It would result from a change in the price of tea itself. b. A leftward shift in the demand curve for tea would mean that the quantity demanded of tea decreases at every given price level. This choice seems to be the accurate description of the analyzed effect when the price of coffee decreases, as people would be more inclined to buy more coffee than tea, causing the demand for tea to decrease. c. An upward movement along the demand curve for tea would also result from a change in the price of tea itself, not from the change in the price of a substitute good like coffee. d. A rightward shift in the demand curve for tea would mean that the quantity demanded of tea increases at every given price level. This choice does not fit the analyzed effect, as a decrease in the price of coffee would make consumers more inclined to buy coffee and decrease the demand for tea, not increase it. Based on the analysis and comparison with the four options, the correct choice is:
04

Answer

b. A leftward shift in the demand curve for tea.

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