Question

You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete against major brands such as Coca-Cola and Pepsi. Suppose that, due to the successful lobbying efforts of sugar producers in the United States, Congress is going to levy a $\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{50}$per pound tariff on all imported raw sugar—the primary input for your product. In addition, Coke and Pepsi plan to launch an aggressive advertising campaign designed to persuade consumers that their branded products are superior to generic soft drinks. How will these events impact the equilibrium price and quantity of generic soft drinks?

Short answer

The action will rise the equilibrium price and decrease the equilibrium quantity Because the decline in supply is greater than the decrease in demand, the equilibrium price will rise while the equilibrium quantity will fall.

Step-by-step solution

Introduction

The equilibrium price and quantity of generic soft drinks are affected by the various economic and government activities. Generic products are made to be more expensive items. Usually, generic products have a higher production cost and thus are less common.

Events impacting the equilibrium price and generic soft drinks:

Due to the given economic events and government activities, consumers are able to substitute goods in their preferred big brands. As a result, the demand curve of the generic products will move to the left. The tax of a specific pound imposed by the government on a significant item also contributed to this leftward movement.

The downfall of generic products has led to hiking the manufacturing cost. Due to the high production costs, production will be reduced. The supply curve will move to the left as a result of the change. In short, the demand and supply curves for generic items will shift leftwards, affecting the equilibrium price and quantity of generic soft drinks.

The price of generic products will either stay the same or increase as a result of this transition. When the price of a raw material rises, the supply of the commodity falls. The increase in the price of a raw material is equivalent to the drop in the demand for the item, which is generated by competitor firms' advertising.

As a result, the equilibrium price will rise while the equilibrium quantity will fall.The decline in supply will be greater than the decrease in demand, so the equilibrium price will rise while the equilibrium quantity will fall .Again, the decrease in supply of a commodity is smaller than the decrease in demand, so the equilibrium price and quantity will fall.