1 Analyze what would happen to equilibrium price and quantit

1. Analyze what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred. Briefly explain your answers. a. The price of Coke decreases. b. Average household income falls from $50,000 to $43,000 c. There are improvements in soft-drink bottling technology. d. The price of sugar increases and the Pepsi launches an extremely successful advertising campaign.

Solution

Req a: The Decrease in price of coke decreases the demand of pepsi. That means demand curve shifts to the left, which will reduce the price and quanitity in equilibrium.

Req b: Fall in income also reduces the demand. That means demand curve shifts to the left, which will reduce the price and quanitity in equilibrium.

Req c: The improvement in technology wil result in lower cost of production. This will increase the supply of the product and supply curve shift to the right, which will result in the increase in equilibrium quantity and the decrease in equilibrium price.

Req d: The sugar price increase will lead to decrease in supply and shift of supply curve to the left. And successful advertising campaign will increase the demand and hence shift demand curve to the right. It will result in increase in equilibrium prices and effect on equilbrium quantity cannot be ascertaained.