Use the information below to answer the following questions.
Fact 3.5.1
The market for coffee is initially in equilibrium.Pepsi is a substitute for coffee;cream is a complement of coffee.Consider the market for coffee.Assume that all ceteris paribus assumptions continue to hold except for the event listed.
-Refer to Fact 3.5.1.An increase in the price of Pepsi,a substitute for coffee will
A)increase the price and the quantity demanded of coffee.
B)increase the price and the quantity supplied of coffee.
C)decrease the price and the quantity demanded of coffee.
D)decrease the price and the quantity supplied of coffee.
E)increase the supply of coffee.

Question

Quizplus · Accepted Answer

When the price of Pepsi, a substitute for coffee, increases, people are likely to switch to coffee, increasing its demand. This higher demand pushes up the price of coffee and encourages producers to supply more, hence increasing the quantity supplied of coffee.

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