A local coffee shop finds that every time they increase the price of their coffee, they sell fewer cups. However, they notice that when a new café opens nearby and offers lower prices, their sales drop even more. What principle of market equilibrium is demonstrated in this scenario?

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Seekh · Accepted Answer

When the shop raises its price, the quantity of coffee sold falls, showing the law of demand: higher prices lower quantity demanded. The opening of a cheaper café shifts the shop’s demand curve leftward, because consumers now prefer the lower‑priced alternative. This shift forces the market equilibrium to a lower price and a smaller quantity sold for the original shop. The situation illustrates how a change in supply conditions—here a new competitor—moves the equilibrium point by altering the demand side. In short, it demonstrates that equilibrium price and quantity adjust when demand curves shift due to price competition.

A local coffee shop finds that every time they increase the price of their coffee, they sell fewer cups. However, they notice that when a new café opens nearby and offers lower prices, their sales drop even more. What principle of market equilibrium is demonstrated in this scenario?

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