Question

Suppose that sharply lower coffee prices lead to a decrease in the demand for tea. Tea price decreases, and the tea producers experience short-run economic losses. If the tea industry is a price-taker market, after sufficient time is allowed for the market to adjust fully to the decrease in the demand for tea, one would expect the tea industry's output to

Answer 1

C)decline and economic losses to disappear.

Step-by-step explanation:

here are the options to this question :

A)increase and economic losses to persist. B)decline and economic losses to persist. C)decline and economic losses to disappear. D)increase and economic losses to disappear

Coffee and tea are substitute goods. As a result, of the fall in price of coffee, the demand for tea would decrease. The decrease in price of tea would lead to an inward shift of the demand curve, assuming supply remains unchanged in the short run, equilibrium quantity would fall and equilibrium price would fall. this leads to firms in the tea industry experiencing economic losses.

In the long run, firms would exit the tea industry, output would reduce and economic losses would disappear