Assume coke and diet coke are substitutes for consumers. What would happen to the equilibrium prices...

Assume coke and diet coke are substitutes for consumers. What would happen to the equilibrium prices and quantities of both regular and diet coke if the price of sugar increases?

Expert Solution

Sugar is an input for regular coke, therefore, a rise in the price of sugar will increases the cost of producing regular coke. This will shift the supply curve of regular coke leftward and will cause a rise in the equilibrium price and fall in the equilibrium quantity.

On the other hand, with the rise in price of regular coke, people will shift their preference towards diet coke as both are substitute. This will increase the demand of diet coke and will cause rise in equilibrium price and quantity of diet coke.

Rahul Sunny answered 2 years ago

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