Question

Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.

Answer 1

III. The supply of soft drinks decreases

Step-by-step explanation:

Changes different from price and quantity supplied or quantity demanded will cause changes in the total supply or demand. In this case, an increase in the cost of the aluminum used by soft-drink companies will increase their cost of production. Because this affects companies which supply canned soft drinks, this increase in the cost of production will affect the total supply. If the cost of production increase, with the same resources, they will produce less but need to compensate this decrease in units by increasing the price. In the demand and supply graph, the supply will shift to the left and this will decrease the equilibrium quantity and increase the equilibrium price.