Suppose that black tea and green tea are substitute goods. Suppose that an excellent growing season for green tea increases the supply of green tea. What happens in the market for black tea?

Question

Quizplus · Accepted Answer

Since black tea and green tea are substitute goods, an increase in the supply of green tea would lead consumers to switch from black tea to green tea, causing the demand for black tea to decrease. Therefore, the market for black tea would experience a decrease in demand, not an increase in supply. Since black tea and green tea are substitute goods, an increase in the supply of green tea will lead to a decrease in the demand for black tea, as consumers will switch to the substitute good. Therefore, the demand for black tea decreases.

Suppose That Black Tea and Green Tea Are Substitute Goods