If tea and coffee can be used in place of one another, then which of the following statements hold true?
(A) Increase in price of tea leads to decrease in demand for coffee.
(B) Increase in price of tea leads to increase in demand for coffee.
(C) Tea and coffee are substitute goods.
(D) Decrease in price of tea leads to increase in price of coffee.
(E) Tea and Coffee are complementary goods.
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (B) and (C) only
Goods that can be used in place of one another are substitutes. When the price of one rises, consumers shift to the other. So the demand for a good moves in the same direction as the price of its substitute.
(A) Increase in price of tea leads to decrease in demand for coffee. — Incorrect. Dearer tea makes people shift to coffee, so the demand for coffee rises.
(B) Increase in price of tea leads to increase in demand for coffee. — Correct. This is how substitutes behave.
(C) Tea and coffee are substitute goods. — Correct. They can be used in place of one another, as the question says.
(D) Decrease in price of tea leads to increase in price of coffee. — Incorrect. Cheaper tea draws people away from coffee. The demand for coffee falls, which gives no reason for its price to rise.
(E) Tea and Coffee are complementary goods. — Incorrect. Complementary goods are consumed together, like tea and sugar. Tea and coffee are not.
NCERT (2026-27): “2.4.4 Substitutes and Complements … We can also study the relation between the quantity of a good that a consumer chooses and the price of a related good. The quantity of a good that the consumer chooses can increase or decrease with the rise in the price of a related good depending on whether the two goods are substitutes or complementary to each other. Goods which are consumed together are called complementary goods. Examples of goods which are complement to each other include tea and sugar, shoes and socks, pen and ink, etc. Since tea and sugar are used together, an increase in the price of sugar is likely to decrease the demand for tea and a decrease in the price of sugar is likely to increase the demand for tea. Similar is the case with other complements. In general, the demand for a good moves in the opposite direction of the price of its complementary goods. In contrast to complements, goods like tea and coffee are not consumed together. In fact, they are substitutes for each other. Since tea is a substitute for coffee, if the price of coffee increases, the consumers can shift to tea, and hence, the consumption of tea is likely to go up. On the other hand, if the price of coffee decreases, the consumption of tea is likely to go down. The demand for a good usually moves in the direction of the price of its substitutes.…” |