Class 12 Micro Economics - Chapter Market Equilibrium NCERT Solutions | How will a change in the price of coffee
How will a change in the price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.
Coffee and tea are substitute goods, i.e. they are used in the place of each other. An increase or a decrease in the price of coffee will lead to an increase or a decrease in the demand for tea respectively. The figure depicts the equilibrium of the tea market. The initial demand and supply of tea is depicted by D1D1 and S1S1 respectively. The initial equilibrium is at E1 with the equilibrium price (pe) and equilibrium quantity (qe). Now the price of coffee increases, which will lead to an increase in the demand of tea (being a substitute good), the demand curve of tea will shift rightward parallelly. At the equilibrium price (Pe), there will be an excess demand for tea, consequently, the price of tea will rise. This will form the new equilibrium at E2 with the new equilibrium price P2 and the new equilibrium output q2. Hence, an increase in the price of coffee will lead the equilibrium price of tea to rise (due to excees demand). Further the increase in the price of coffe will also lead to the increase in demand for tea as tea is the substitute good and coffee. Now, if the price of coffee decreases, there will be a decreases in the demand for tea. The demand curve for tea will shift leftward parallelly to D2D2. At the equilibrium price (Pe) there will be an excees supply. Consequently, the price of tea will fall, which will form the new equilibrium at E2 with new equilibrium price P2 and the new equilibrium output q2. Hence a decrease in the price of coffee will lead to a decrease in the price of tea and a decrease in the demand for tea as people will switch over to consumption of coffee.
More Questions From Class 12 Micro Economics - Chapter Market Equilibrium
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Suppose the price at which the equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now if we allow for free entry and exit of firms, how will the market price adjust to it?
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When do we say that there is an excess demand for a commodity in the market?
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Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those seeking apartments on rent by imposing control on rent, what impact will it have on the market for apartments?
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In what respect do the supply and demand curves in the labor market differ from those in the goods market?
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Explain market equilibrium.
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If the price of a substitute Y of good X increases, what impact does it have on the equilibrium price and quantity of good X?
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Explain how price is determined in a perfectly competitive market with a fixed number of firms.
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How is the optimal amount of labor determined in a perfectly competitive market?
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Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
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Quantity
1
2
3
4
5
6
7
8
9
Marginal
Revenue
10
6
2
2
2
0
0
0
-
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Recently Viewed Questions of Class 12 Micro Economics
- Q:-
How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
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Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.
Quantity Sold TR MR AR 0
1
2
3
4
5
6 - Q:-
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
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There are three identical firms in a market. The following table shows the supply schedule of firm 1. Compute the market supply schedule.
Price (Rs.) SS1 (units) 0
1
2
3
4
5
6
7
80
0
2
4
6
8
10
12
14 - Q:-
How does the budget line change if the consumer’s income increases to Rs 40 but the prices remain unchanged?
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