Final answer:
A decrease in the supply of tea, assuming tea and coffee are substitutes, would likely lead to an increased demand and potentially an increase in prices for coffee, as consumers switch to the alternative. Historical instances in the coffee market demonstrate how supply shifts with inelastic demand lead to significant price changes. Market adjustments in response to supply changes for tea and coffee would happen automatically without government intervention.
Step-by-step explanation:
When cold temperatures cause a decrease in the supply of tea, and assuming that tea and coffee are substitutes, this should result in a shift in consumer behavior in the market for coffee. Since the two beverages are substitutes, a decrease in the supply of tea would likely increase the demand for coffee as consumers switch to the alternative product. The increased demand for coffee could lead to a higher equilibrium price for coffee and potentially an increase in quantity supplied if producers respond to the price signal.
This is in line with the law of demand and the law of supply. As the price of tea increases due to the reduced supply, consumers, seeking a substitute, may increase their coffee consumption since its relative price has become more attractive. This would shift the demand curve for coffee to the right. Given coffee's inelastic demand, where a 10% rise in the price of coffee leads to only about a 3% decline in quantity consumed, the higher demand could result in a significant increase in price.
Historical incidents, such as when the Brazilian coffee crop was hit by frost in 1994 or when Vietnam became a major producer, illustrate how shifts in supply accompanied by inelastic demand can cause considerable fluctuations in price. In these scenarios, adjustments in the equilibrium price and quantity for coffee occur in the market without the need for government intervention. Similarly, if the supply of tea decreases, the market is likely to adjust automatically to the new dynamics between tea and coffee.