How will an increase in the price of coffee affect the demand for tea? Explain with a diagram.

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Solution

Increase in price of coffee will result in rise in demand for tea as they are substitute goods.

When price of coffee is Rs 20, the demand for tea is shown by DD curve.

When price of coffee increases to Rs 25, the demand for tea shows a rightward shift which is reflected by $D_{1} D_{1}$ curve.

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