Question

Explain with the help of diagram the effect of the following changes on the demand for a commodity:

A rise in price of substitute goods

Answer 1

If the price of coffee rises from OP₀ to OP₁, while the price of tea remaining same, many consumers will shift from the consumption of coffee to the consumption of tea because tea has now become relatively cheaper. As a result, the demand for tea will increase from OQ₀ to OQ₁ and that of coffee will decrease.