Question

Because Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the demandfor Coke to decrease. This initial shift in demand for Coke results in a lower price for Coke; thislower price will cause the demand curve for Coke to shift to the left.ʺWhich of the followingcorrectly comments on this statement?A) The statement is false because one cannot assume that Coke and Pepsi are substitutes for allconsumers.B) The statement will be true if consumer tastes for Coke and Pepsi do not change.C) The statement is false because Pepsi is an inferior good; Coke is a normal good.D) The statement is false because a change in the price of Coke would not change the demandfor Coke

Answer 1

The correct answer is option D.

Step-by-step explanation:

Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the quantity demanded for Pepsi to increase and demand for Coke to decrease. The decrease in quantity demanded will cause the demand curve to move to the left. The equilibrium price for coke will decrease.

But this will not cause a further change in demand curve. The demand curve will not move to the left due to change in price. So, this statement is not true.