Question

In March 2012, the state of California started requiring that all packaging for food and drink with the additive 4-methylimidazole (4-MI) be clearly labeled with a cancer warning. Because of this, both Pepsi and Coke changed their formulas to eliminate 4-MI as an ingredient. If Pepsi and Coke did NOT change their formulas, holding all else constant, what do you think would have happened to the demand for these goods, assuming Pepsi and Coke were in a competitive market?

Answer 1

Answer:

Option E.

Explanation:

In case when Pepsi and Coke did not modify its formulas and keeping other things constant the demand for these goods is shifted to left as the price of the products would decline due to which the profit for both companies would fall

Moreover, the fall in demand is not due to an increase in price but it has harmful chemicals which shifted the demand curve to the left

hence, the correct option is E.