24. A Large coca-cola vendor recently hired some economic analysts to assess the effect of a price increase in its 16-ounce bottles from $1.00 to $2.00. The analysts determined that, on average, the vendor’s customers spend about $15.00 on soda (Coke and all other brands) each week, and the average price for other 16-ounce soda bottles is $1.00. 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 x0 = 9 and X1 =7. Should the vendor expect to sell 7, more than 7, or less than 7 bottles of coke after raising the price to $2.00 if coke is a normal good?

Question

03-11-2022
Business

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24. A Large coca-cola vendor recently hired some economic analysts to assess the effect of a price increase in its 16-ounce bottles from $1.00 to $2.00. The analysts determined that, on average, the vendor’s customers spend about $15.00 on soda (Coke and all other brands) each week, and the average price for other 16-ounce soda bottles is $1.00. 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 x0 = 9 and X1 =7. Should the vendor expect to sell 7, more than 7, or less than 7 bottles of coke after raising the price to $2.00 if coke is a normal good?

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Yogeshkumari Yogeshkumari · Answer 1 · 2022-11-16T21:12:44-05:00

As per the effect on the given situation, the vendor should expect to sell less than units of soda if there is a price increase.

Vendor:

Vendor refers the individual or company that sells goods or services to someone else in the economic production chain.

Given,

A Large Coca-Cola vendor recently hired some economic analysts to assess the effect of a price increase in its 16-ounce bottles from $1.00 to $2.00. The analysts determined that, on average, the vendor’s customers spend about $15.00 on soda (Coke and all other brands) each week, and the average price for other 16-ounce soda bottles is $1.00. The analysts also utilized some focus groups to determine the preferences of the vendor’s customers.

Here we need to find the effect of increasing the price on the market.

According to the given question, in this case, the normal goods can be divided into two effects: substitution and income.

Here the substitution effect has a straight association with the consumers.

And it changes cheaper goods when the price of the commodity rises. This effect will always results in the fall in consumption of price-increased goods and the increase in consumption of all the other goods.

Whereas the Income effect is the cause of the decreasing consumption of both goods, and it directly connects with the consumer's income.

This one is also, their consumption of goods will be reliant on their income.

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

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