Equilibrium Price

In: Business and Management

Submitted By lolybabe
Words 357
Pages 2
Unit 2 Assignment
Student Name:

Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.

1. Explain what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well):

a. The price of Coke decreases.

Pepsi and Coke are Substitute goods. If the price of Coke decreases then people would pick up a Coke instead of the Pepsi because the price is better.. The equilibrium price would decrease in order to make the same amount of money. They would need to make more in order to make the same amount of money.

b. Average household income falls from $50,000 to $43,000

The demand for Pepsi would decrease because Pepsi is not a necessity for the home more of a luxury. When the income decrease people will cut down on the luxuries and buy only what is needed.

c. There are improvements in soft-drink bottling technology.

This means that the product would be cheaper and faster to make. They can sell the product cheaper and produce more.

d. The price of sugar increases and the Pepsi launches an extremely successful advertising campaign.

This means that the product would be more expensive to make because sugar is more expensive. Pepsi would have to increase pricing and the quantity would decrease.

2. Use the following equations for demand and supply to solve for market equilibrium price and quantity:

Demand: Qd = 100 – 4P

Supply: Qs = 10 + 6P

Qd=QS

100-4p=10+6p

90=10p

P=9

Equilirbium Price=9

100-4(9)=64= Qd

10+6(9)=64= Qs

Equilibrium quantity = 64…...

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