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Ceteris paribus, Diet Cola Brand X and Diet Cola Brand Y are substitutes in consumption. The price of Diet Cola Brand Y falls.

a. What happens to the demand for Diet Cola Brand X?
b. What happens to the demand for Diet Cola Brand Y?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019

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Other things being equal, the effect of a decrease in the price of Coca-Cola would cause which of the following?

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  c. A rightward shift in the demand curve for Coca-Cola.  
 

d. A downward movement along the demand curve for Coca-Cola.

 

Which of the following statements is CORRECT?

  a. The use of debt financing will tend to lower the basic earning power ratio, other things are held constant.  
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It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute 4 pounds of a generic store brand for 2 pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution? Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased? How would your answer change if the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound?

P.S. Keep in mind they are perfect substitutes. So doesn't this mean there is not diminishing marginal rate of substitution?

Only one thing can cause movement along a product’s demand curve --- that is, cause a change in quantity demanded for that product --- and that’s a change in that product’s price. On the other hand, there are five key variables that can cause a product’s demand curve to shift to the left or right --- that is, lead to a change in demand. Coca-Cola is experiencing shifts in the U.S. demand curve for its famous cola soft drink, as the huge post-World War II “Baby Boom” generation has aged beyond their prime soft drink consumption years, and as the smaller generations behind the Baby Boomers have been buying relatively more energy drinks, water, juice, and tea, and relatively less soda than previous generations. What two key variables are affecting demand for Coca-Cola in the U.S., and in which direction are these variables shifting the demand curve for Coke?

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