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Question

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


Solution

Increase in price of tea will reduce the demand for sugar, as they are generally complementary goods. When price of tea is Rs 20, the demand for sugar is shown by DD curve. When the price of tea increases to Rs 25, the demand for sugar shows a leftward shift which is reflected by D1 D1, curve.


Micro Economics

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