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Coca Cola: Applying Micro Economics Concepts Essay

693 words - 3 pages

Price Elasticty of Demand: Coca Cola Company
Price Elasticity of demand measures the change in the quantity demanded in response to a change in market price of the commodity. The same is measured by following formula:
Price Elasticity of Demand= % Change in Quantity Demanded/ % Change in Price
In context of Coca Cola company, the price elasticity of demand can be described as change in quantity demanded of Coca Cola when the company changes the price of the soft drink at which it is offered to the consumers. For instance, if Coca Cola increases the price of 300 ml Bottle from $1 to $2, then it is obvious that the consumers will decrease their quantity demanded following the decision of ...view middle of the document...

Thus for Coca Cola, the management fix the price when both demand and supply comes intersects/ reaches equilibrium.


However, apart from price there are other factors that affect both demand and supply of the Coca Cola and are discussed below:
Factors affecting demand of Coca Cola:
a) Price of Substitute Goods:
Since Pepsi is the nearest substitute of Coca Cola Brand, any fall or rise in price of Pepsi will have an impact on demand of Coca Cola. For instance, if price of 300 ml bottle of Pepsi is reduced by 40 cents, then Coca Cola will face decrease in demand which graphically will be indicated by backward shift in demand curve. (Parkin, 2011)


Income of Consumers:
With Coca Cola being a normal good any fall in income of the consumer will have a negative effect on demand of the good and vice versa. This will also cause shift in demand curve .

Factors affecting Supply:
Prices of Inputs:
Since sugar and other flavoring agents are an integral...

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