If cigarettes and alchohol are substitutes, if the price of cigarettes rises what happens to the...
If cigarettes and alchohol are substitutes, if the price of cigarettes rises what happens to the price of alchohol.
Homework Answers
Substitutes are the goods such that increase in price of one good leads to rise in demand of another good. Since cigarettes and alcohol are substitutes, rise in price of cigarettes will lead to rise in demand of alcohol.
Thus there will be an upward shift in the demand curve of alcohol. Supply curve being the same, the new demand curve and the old supply curve will intersect at the point where price and quantity are both greater than before. Thus the equilibrium price increased due to upward shift in the demand curve.
Thus we can say that being substitutes, the rise in price of cigarettes will lead to rise in price of alcohol.
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