Daily Review -- Supply and Demand

On the graph, Market for Pep UP! show what happens to the market equilibrium for Pep UP! when the price of Yea! Cola increases.  Assume that Pep UP! and Yea! Cola are substitutes.  


Print out the graph and draw your response.  Write about your answer.

My answer is that the demand curve will shift to the left.  Now a higher price results for a larger quantity of Pep UP! Cola.  In the AP Microeconomics lingo, there was a change in demand because of a change in the price of a related good.  In addition, there was a change in the quantity supplied.  a change in the quantity supplied infers that it now takes more land, labor, and capital to make the caffeine-rich cola and the use of the resources comes at a higher opportunity cost which is reflected in the higher price.


These two goods are a related good.  Specifically, they are substitute goods.


It is my opinion, that the price of Pep UP! cola and Yea! Cola will equate and a long-run equilibrium will be restored.


One might argue that these soft drinks are produced in an Oligopoly market and that Pep UP! was the price leader.


This analysis was taken from my new app for the Kindle Fire which will appear on Amazon.com soon.  For all of my apps, click here.