MT445 Unit 2 Assignment
Unit 2 Assignment
Student Name: Melisa Horton
Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.
1. Explain what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well):
a. The price of Coke decreases.
The equilibrium price drops because of the price drop from Coke. This will show a decrease in the quantity demanded for Pepsi and create a surplus of Pepsi. The only way to return the equilibrium price would be for Coke to raise the price back up or Pepsi would have to subsequently drop their price to remain competitive.
b. Average household income falls from $50,000 to $43,000.
This decrease in household income will force the equilibrium price to be dropped because there will be a decrease in quantity demanded if people have less money to spend on discretionary expenses like soda pop. Additionally, this will create a surplus of Pepsi if people decrease the amount that they buy at any price.
c. There are improvements in soft-drink bottling technology.
Improving soft-drink bottling technology would increase the amount of profit that Pepsi would make on each can or bottle of Pepsi. These improvements would lower the overhead cost of packaging the product for sale. This could drop the equilibrium price if Pepsi forwards the savings to the consumer which would increase the amount of quantity demanded. If they leave the price the same, they would increase their profits without changes to any of the other numbers.
d. The price of sugar increases and then Pepsi launches an extremely successful advertising campaign.
This can go two ways: 1. the increase in sugar prices could force Pepsi to raise their prices which would decrease the quantity demanded. OR 2. the successful advertising campaign rises the quantity demanded even if the price goes up. Either way, Pepsi has the opportunity to raise the equilibrium price in
Student Name: Melisa Horton
Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.
1. Explain what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well):
a. The price of Coke decreases.
The equilibrium price drops because of the price drop from Coke. This will show a decrease in the quantity demanded for Pepsi and create a surplus of Pepsi. The only way to return the equilibrium price would be for Coke to raise the price back up or Pepsi would have to subsequently drop their price to remain competitive.
b. Average household income falls from $50,000 to $43,000.
This decrease in household income will force the equilibrium price to be dropped because there will be a decrease in quantity demanded if people have less money to spend on discretionary expenses like soda pop. Additionally, this will create a surplus of Pepsi if people decrease the amount that they buy at any price.
c. There are improvements in soft-drink bottling technology.
Improving soft-drink bottling technology would increase the amount of profit that Pepsi would make on each can or bottle of Pepsi. These improvements would lower the overhead cost of packaging the product for sale. This could drop the equilibrium price if Pepsi forwards the savings to the consumer which would increase the amount of quantity demanded. If they leave the price the same, they would increase their profits without changes to any of the other numbers.
d. The price of sugar increases and then Pepsi launches an extremely successful advertising campaign.
This can go two ways: 1. the increase in sugar prices could force Pepsi to raise their prices which would decrease the quantity demanded. OR 2. the successful advertising campaign rises the quantity demanded even if the price goes up. Either way, Pepsi has the opportunity to raise the equilibrium price in