Question

You are Coca-Cola's manager and are facing the effect of research published in 2004 that states that consuming high fructose corn syrup (HFCS), which is the sweeter used in soft drink manufacturing, is affiliated with promoting obesity. Consider the number of news reports and the number of other research papers on this topic that have been published since 2004.

What is the effect of population on consumption of Coca-Cola?

Assume that consumers are worried about the positive relation between consumption of HFCS and obesity, so they increase bottled water consumption. Explain the effect of this on the demand for Coca-Cola. Is the cross price elasticity of demand between Coca-Cola and bottled water negative of positive, explain?

Answer 1

Whenever there will be any kind of negative reports or researches conducted on the products and its ingredients, it is found that the customers tend to avoid those products. As in the case, it is stated that the research found that consuming high fructose corn syrup (HFCS) can cause obesity and it is used as one of the ingredients of Coca-Cola thus the customers will start avoiding consuming Coca-Cola.

When the consumers will start drinking bottled water, this will result in a decline of Coca-Cola demand.

As the demand for Coca-Cola declines with the increasing demand for bottled water, there will be a negative cross elasticity of demand between Coca-Cola and bottled water. The negative cross elasticity of demand is when the increase in the demand for a certain product results in the decrease in the demand of other product.