Effect on Demand for Coke as a Result of a fall in the Price of Pepsi - Essay Example

Effect on Demand for Coke as a Result of a fall in the Price of Pepsi Demand is the volume of commodities that a buyer in the market is willing to pay for at a certain price in a given period of time. Each and every person in the market economy has a demand that is of individual interest for certain goods and services. The price that is on the good or the service is what determines the demand for that good in the economy. In the law of demand, there is usually an inverse relationship between the price that is tagged on goods and the demand for the goods (Hildenbrand, 2014).

Demand of a particular product increases due to a decrease in the price of the good. There is a vice versa effect on the demand for the good whereby the demand decreases as a result of an increase in the price of the good. There are certain factors that affect the demand of a good or a service. There is effect on the demand for the good and services as a result of the level of income of the consumer. The consumer can demand more goods with a given level of income when the prices of the goods fall.

With the same level of income, the consumer demands less goods and services if the price of the goods is increased (Hildenbrand, 2014). There is also the effect of demand for goods and services due to the substitution of the goods. The demand for a good and service falls if the price of the substitute good falls since the consumers turn to the cheaper one. The consumers aim at saving and hence prefer the cheaper goods than the expensive substitutes hence affecting the demand for the two goods both negatively and positively.

Consumers use different goods to satisfy their needs. There are particular goods that can be used to satisfy the same need of a consumer regardless being of different forms. There is usually a rise in the level of demand of one good if the price of the other good rises and the other one falls. An example of such goods is the Coke and the Pepsi product in the market (Hildenbrand, 2014). These products satisfy the same need of the consumers since they are all soft drinks and they can all be used to quench thirst.

This serving of the same purpose by the coke and the Pepsi where the coke can be used instead of Pepsi and Pepsi can be used instead of coke to satisfy the same need makes them perfect substitutes.The coke and the Pepsi products being perfect substitutes can have their demands affected differently by changes in their prices. A change of the price of one good would affect the demand for the other good. For example, if the price of the Pepsi price falls, the consumers would shift their focus to the Pepsi product since they can afford more of the product at a cheaper price than the coke.

This affects the demand for the coke where the demand for the coke in the market falls. This is because the price of the coke is higher than that of the Pepsi and as seen earlier they all serve the same purpose. This is the inverse effect of the law of demand where low prices lead to high demand and high prices leads to low demand.ReferencesHildenbrand, Werner (2014). Market Demand: Theory and Empirical Evidence. Princeton University Press