Question

If Tea and Coffee are substitutes, a fall in the prices of Tea leads to:

(i) Rise in the demand for Tea
(ii) Fall in the demand of Tea
(iii) Fall in the demand for Coffee
(iv) Rise in the demand of coffee

Alternatives:

Options

• Both (ii) and (iv)

• Both (i) and (iii)

• Both (ii) and (iii)

• Both (iii) and (iv)

Answer 1

Both (i) and (iii)

Explanation:

Tea’s own price falling raises its quantity demanded, while the cheaper tea reduces demand for its substitute, coffee. Hence statements (i) and (iii) are correct.