Question

Suppose the price of Vanilla Coke increases by 9% and quantity demanded falls by 13% overall, but only 4% for loyal Coca-Cola customers. This means that for the general public there are ______ for Vanilla Coke, but for loyal Coca-Cola customers, Vanilla Coke is more of a ______ item. This means that Coca-Cola will enjoy an increase in total revenue only from ______.

Answer 1

Answer: A) several substitutes; necessity; loyal Coca-Cola customers

Explanation:

SEVERAL SUBSTITUTES

Substitute goods are goods that are similar and so can be used in place of the other. Generally when the price of a good with a substitute increases, people switch to their substitutes if their price remain the same. The demand for vanilla coke dropped when it's prices rose signifying that people switched to the substitutes.

NECESSITY GOODS

These are also known as normal goods and increase in relation to income. That is if income increases, they increase as well but at a lower rate. Since we are assuming that the income of coke loyalists did not change but rather the prices rose and the demand reduced at a rate less than the increase in price we can safely assume that vanilla coke is a necessary good to Coca-Cola loyalists.

LOYAL COCA-COLA CUSTOMERS

Because the reduction in demand for Vanilla coke amongst Coca-Cola loyalists is less than the increase in price as opposed to the general public where the reduction in demand is more than the increase in price, we can say that an increase in total revenue is only coming from the loyal coke customers.