Question

A large Coca-Cola vendor recently hired some economic analysts to assess the effect of a price increase in its-ounce bottles fromto \(2.00. The analysts determined that, on average, the vendor’s customers spend abouton soda (Coke and all other brands) each week, and the average price for other-ounce soda bottles is. The analysts also utilized some focus groups to determine the preferences of the vendor’s customers. They used this analysis to build the following graph:

Suppose${\mathbf{X}}_{\mathbf{0}}=\mathbf{9}\mathbf{and}{\mathbf{X}}_{\mathbf{1}}=\mathbf{7}$. Should the vendor expect to sell 7, more than 7, or less than 7bottles of Coke after raising the price to$\backslash )2.00$if Coke is a normal good?

Short answer

The vendor should expect to sell less than 7 units of soda if Coke is a normalgood.

Step-by-step solution

 Step 1: Introduction:

The Coca-Cola Company, an Americancompany basedin 1892. These daysit is engagedfrequently with inside themanufacture, sale of syrup andpay attentionto Coca-Cola, a sweetened carbonated beveragethat may be aculturalgroup with inside theUnited States and aworldwide imageof American tastes.

Find if Coke is a Normal good

As per the question, in this case, the normal goods can be divided into two effects: substitution and income.

The substitution effect has a straight association with the consumers. It changes cheaper goods when the price of the commodity rises. This effect always results in the fall in consumption of price-increased goods and the increase in consumption of all the other goods. While the Income effect is the cause of the decreasing consumption of both goods, it directly connects with the consumer's income. Also, their consumption of goods will be reliant on their income.

If there is a price increase in soda, the final consumption will decrease by applying the substitution and income effect. Also, both effects will fall in the same direction, causing final consumption to be less than units.

Hence, we conclude that the vendor should expect to sell less than units of soda if there is a price increase.