What will be the result of the following on the soft drink market?
An increase in the price of sugar (an ingredient for soft drinks) and an increased concern about tooth decay caused by the consumption of soft drinks.
A. There will be an increase in both the equilibrium price and quantity. B. Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same. C. There will be a decrease in both equilibrium price and quantity. D. Equilibrium quantity will increase, but equilibrium price may decrease, increase, or stay the same.
Get ready, because capitalism is a fireball and hard to anticipate. The correct answer is most likely answer B: equilibrium quantity will decrease, but equilibrium price may increase, decrease, or stay the same. This is because there’s a lot that the question doesn’t take into account.
For example, you may have someone who purchases a particular soda because they are having a party and rarely drink soda (perhaps once every year or so). Then, you may have someone who buys it for headaches (I do that; I drink too much soda, but that’s for another day). The pricing on the soda itself - not the cost to produce it, but when it is sold to people like us - may change, and it may not. It depends on how much soda sales suffer because of the concern.
Equilibrium prices are the market prices for a product where the quantity of the supply is equal to the quantity of the demand for the product. If sugar prices are increasing and there are negative reports about drinking the product, several things can happen.
The demand for soft drinks may go down while the production costs increase. That is not for certain, as consumers may not believe the negative reports or may choose to ignore them and continue purchasing as usual. Therefore, choice B makes the most sense. The price to produce the soda will definitely increase.