Question

Suppose generic brands of soft drinks are substitute goods to Pepsi and Coke. If Pepsi and Coke increase in price due to significantly higher expenses for television advertising, which of the following is likely to occur?

a	The demand for generic soft drinks will increase.

b	The demand for generic soft drinks will decrease.

c	The demand for Pepsi and Coke will increase.

d	The demand for Pepsi and Coke will decrease.

e	The demand curves for Pepsi and Coke will shift to the left.

In a competitive market,

a	the price at which an individual firm is willing to supply is equal to the firm's anticipated revenue.

b	individual firm supply is given by the market supply schedule.

c	individual firm supply is equal to individual consumer demand.

d	individual firm supply is equal to what consumers are willing and able to pay.

e	the price at which an individual firm is willing to supply is equal to the firm's marginal costs of production.

Answer 1

Pepsi and coke are substitute to generic brands of soft drinks, then increase in the price of pepsi and coke due to higher advertising expenses, this will cause an increase in demand of generic brands of soft drinks. As pepsi and coke are substitute to it, therefore any increase in price in pepsi and coke will shift the consumer's demand from them to generic brands of soft drinks. Hence, the demand for generic soft drinks will increase.

In a competitive market,the price at which an individual firm is willing to supply is equal to the firm's marginal costs of production.