Tea Gets Pricier

Tea Gets Pricier, step by step

1. 1

   Start in equilibrium

   The market for coffee begins in equilibrium where supply and demand cross. At this price there is no shortage and no surplus, so price and quantity have no reason to change.

2. 2

   Tea gets more expensive

   The price of tea, a substitute for coffee, rises sharply. Tea drinkers switch toward coffee, so at every possible coffee price buyers now want more coffee than before.

3. 3

   A shortage appears

   At the old coffee price the higher demand means quantity demanded now exceeds quantity supplied, creating a temporary shortage. This shortage puts upward pressure on the price of coffee.

4. 4

   New equilibrium

   As the price rises, producers move up along the supply curve and offer more coffee while some buyers pull back, until the shortage is gone. The market settles at a higher equilibrium price and a larger equilibrium quantity.

Where it ends up

The equilibrium price of coffee rises and the equilibrium quantity increases.

Now draw it yourself

Same graph, graded on whether you move the right curve and leave the rest alone.

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