Suppose there is an increase in price of coffee. How it will affect the Supply Curve of tea?

Supply curve will shift to left

The correct answer is Option 1: Supply curve will shift to left

An increase in the price of coffee will affect the supply curve of tea because coffee and tea are substitute goods in production. When the supply of a commodity changes due to factors other than its own price, it is called a change in supply, which leads to a shift in the supply curve.

In this case, due to the increase in coffee prices, some producers may shift their resources from tea to coffee production to take advantage of higher profits. This results in less tea being produced, causing the supply of tea to decrease. As a result, the supply curve of tea shifts to the left — meaning that at the same price levels, a smaller quantity of tea will be supplied than before.

Note: Option 3 is not applicable because it reflects a rightward shift in the supply curve of tea, which would occur only if the supply of tea increases. However, in this case, the price of coffee has increased — and coffee and tea are substitute goods in production, not consumption. This means producers can choose to produce either coffee or tea using similar resources. When the price of coffee rises, producers are likely to shift resources away from tea to coffee to earn higher profits, leading to a decrease in the supply of tea, and hence a leftward shift in its supply curve. Many students confuse this with substitutes in consumption, where an increase in the price of coffee would increase the demand for tea — but that affects the demand curve, not the supply curve, which is the focus of this question.