PEPSI

CASE STUDY
Consider the markets for Pepsi. For each of the
events listed here, please analyze the impact on the
equilibrium price and quantity of the product.

1. The price of sugar increases

2. The new study is released that indicates that
drinking Pepsi is hazardous to health
3. Coke increases its advertisement budget
4. Government increases GST rates on soft drinks
5. There is a sudden rise in temperature.

Please use the help of diagrams to illustrate each

impact.
 THE PRICE OF SUGAR INCREASES

PRICE ELASTICITY

When the price of sugar increases, it has an impact

on the production costs for Pepsi, as sugar is one of
the key ingredients used in the production of the
beverage. The increase in production costs leads to a
decrease in the supply of Pepsi.
Therefore, the increase in the price of sugar leads to
a decrease in the equilibrium quantity of Pepsi and
an increase in the equilibrium price.
Please note that the impact of the increase in sugar
prices is analyzed assuming ceteris paribus,
meaning that other factors influencing the market
for Pepsi remain constant.
RELATIVELY INELASTIC
DEMAND