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Pepsi and Coca Cola are substitute products. In the beginning price of a can of Pepsi...

Pepsi and Coca Cola are substitute products. In the beginning price of a can of Pepsi and the price of a can of Coca-Cola is $1. While nothing happens to Pepsi's price, Coca-Cola's price increases from $1 to $1.35. What will be the impact of an increase in coca cola's price on Pepsi's market demand? What will be the impact of an increase in the coca-cola price on the coca cola's market demand?

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Answer #1

Substitute goods are those ithat can be used for one another.

There is positive relationship in price of one good and demand for other good in case of substitute goods.

Pepsi and Coca Cola are substitute products. In the beginning price of a can of Pepsi and the price of a can of Coca-Cola is $1. While nothing happens to Pepsi's price, Coca-Cola's price increases from $1 to $1.35.

Due to increase in price of coca cola , demand of pepsi will increase and demand of coca cola will decline as the price of coca cola will increase, consumer will start consuming pepsi.

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