With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus.

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Tea and coffee are auxiliary produce, signifying they may stand in for one another. An upsurge or fall in tea expenses will lead to an intensification or decrease in coffee consumption, respectively.

In the figure below, when the price of tea increases from P₁ to P2, people would consume less tea, and the quantity demanded will decline from Q₁ to Q₂. This is because many people will opt to go for coffee which has lower prices.

Figure shows when the price of tea increases from P₁ to P2, people would consume less tea, and the quantity demanded will decline from Q₁ to Q₂.

For coffee, the substitute good, according to the figure below, the demand curve shifts towards the right for all price levels, from D to D1, leading to more consumption of the substitute good.

Figure shows the demand curve shifts towards the right for all price levels, from D to D1.

When the price of tea in the figure below decreases from P2 to P₁, people will consume more tea, and the quantity will increase from Q₂ to Q₁. This is because when the price of tea goes down, many people will opt to take tea hence increasing its demand.

Figure shows decreases from P2 to P₁, people will consume more tea, and the quantity will increase from Q₂ to Q₁.

For coffee, the substitute good, according to the figure below, the demand curve shifts towards the left for all price levels, from D¹ to D, leading to less consumption of the substitute good.

Figure shows the demand curve shifts towards the left for all price levels, from D¹ to D.

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Academic.Tips. (2023) 'With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus'. 12 May.

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Academic.Tips. (2023, May 12). With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus. https://academic.tips/question/with-the-aid-of-suitable-diagrams-illustrate-how-supply-and-demand-analysis-can-explain-changes-in-price-and-output-of-tea-when-a-substitute-good-coffee-is-introduced-in-the-market-ceteris-paribus/

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Academic.Tips. 2023. "With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus." May 12, 2023. https://academic.tips/question/with-the-aid-of-suitable-diagrams-illustrate-how-supply-and-demand-analysis-can-explain-changes-in-price-and-output-of-tea-when-a-substitute-good-coffee-is-introduced-in-the-market-ceteris-paribus/.

1. Academic.Tips. "With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus." May 12, 2023. https://academic.tips/question/with-the-aid-of-suitable-diagrams-illustrate-how-supply-and-demand-analysis-can-explain-changes-in-price-and-output-of-tea-when-a-substitute-good-coffee-is-introduced-in-the-market-ceteris-paribus/.

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Academic.Tips. "With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus." May 12, 2023. https://academic.tips/question/with-the-aid-of-suitable-diagrams-illustrate-how-supply-and-demand-analysis-can-explain-changes-in-price-and-output-of-tea-when-a-substitute-good-coffee-is-introduced-in-the-market-ceteris-paribus/.

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"With the aid of suitable diagrams, illustrate how supply and demand analysis can explain changes in price and output of tea when a substitute good (coffee) is introduced in the market, ceteris paribus." Academic.Tips, 12 May 2023, academic.tips/question/with-the-aid-of-suitable-diagrams-illustrate-how-supply-and-demand-analysis-can-explain-changes-in-price-and-output-of-tea-when-a-substitute-good-coffee-is-introduced-in-the-market-ceteris-paribus/.

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