As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:

Question

Quizplus · Accepted Answer

The decrease in demand for coffee due to the increase in price and substitution with tea is an example of the substitution effect. The income effect refers to the change in demand due to a change in income, which is not the case here. The change in equilibrium and shift in the demand curve refer to changes in the market conditions and are not applicable to this scenario.

As Coffee Becomes More Expensive, Joe Starts Drinking Tea, and Therefore