Answer to Question #49146 in Microeconomics for nisa

Question

the price of tea,a substitute for hot chocolate,falls..so what is the impact on demand and supply..?

Answer 1

A substitute good, in contrast to a complementary good, is a good with a positive cross elasticity of demand. This means a good's demand is increased when the price of another good is increased. Conversely, the demand for a good is decreased when the price of another good is decreased. If tea and hot chocolate are substitutes, a decrease in the price of tea will result in a rightward movement along the demand curve of tea and cause the demand curve for B to decrease and shift in. The supply of tea will decrease.