Answer :
Final answer:
If the price of Starbucks coffee, a substitute good to Tim Hortons coffee, increases, the demand for Tim Hortons coffee is likely to rise due to the forces of supply, demand, and price elasticity of demand.
Explanation:
In the realm of economic theory, Tim Hortons and Starbucks coffee are considered substitute goods. When the price of one increases, it makes the other more appealing to consumers, shifting demand away from the more expensive item and toward the cheaper one. Therefore if the price of Starbucks coffee increases, this would likely increase the demand for Tim Hortons coffee.
This is a response to changes in relative price due to shifts in supply and demand. This is reflected in the positive cross-price elasticity of demand for substitute goods. For example, when Brazil experienced a major frost in 1994, it led to higher coffee prices, implying a major shift in coffee supply to the left. With coffee demand being inelastic (change in price leads to less than proportionate change in quantity demanded), the change manifested as an increase in price.
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