Question

How does an increase in the price of a substitute good affect the equilibrium price of a good? Illustrate with a diagram.

Answer 1

An increase in the price of a substitute good (say, coffee) will cause an increase in demand for its related good (say, tea). As a result, the demand curve of tea will shift to the right. The supply curve of tea remains the same and this will lead to an increase in the equilibrium price of tea and increase in quantity exchanged.
It is clear from the diagram that as a result of increase in demand, the demand curve will shift rightward. As a result, the price rises from OP to $O{P}_1$ and the quantity rises from OQ to $O{Q}_1$.