Question

1. What would happen to the demand for "Pepsi" in the following situations? Will the demand curve shift to the left, shift to the right or stay unchanged? (1x5=5marks)

• XYZ Company has terminated 300employees. ( ________________________________________)
• Dew's price is reduced by 10%. ( ________________________________________)
• Shani and Coca-Cola cut their prices by 25%. ( _____________________)
• 7'Up'sprice declined by 20%. ( _____________________)
• Sprite reduces its price by 20%. ( __________________________________________)

Answer 1

Kindly note since only Pepsi is mentioned and not PepsiCo we assume all the drinks to be competitors of each other

Also the change in demand for Pepsi cannot be measured in magnitude as quantity information and price of pepsi is not given

Only the shift of the curves are mentioned in this solution

If XYZ company terminates 300 employees then there will be no change in the demand curve of Pepsi as it is not a determinant of Pepsi's demand

If Dews price is reduced by 10percent then demand curve for Pepsi will shift to left because Dew and Pepsi are substitute goods. Fall in price of one good will result in fall in demand of substitute good.

If Shani and CocaCola price is reduced by 25percent then demand curve for Pepsi will shift to left because Shani and CocaCola are substitute goods. Fall in price of one good will result in fall in demand of substitute good

If 7ups price is reduced by 20percent then demand curve for Pepsi will shift to left because 7up and Pepsi are substitute goods. Fall in price of one good will result in fall in demand of substitute good

If Sprites price is reduced by 25percent then demand curve for Pepsi will shift to left because Sprite and Pepsi are substitute goods. Fall in price of one good will result in fall in demand of substitute good

All of the above can be expressed as the same diagram given which shows effect on the demand of Pepsi