SOFT DRINK - Essay Example

Supply, Demand, and Equilibrium: Supply and demand is the main concept on which whole study of economics is based. The demand is known to be the quantity asked by the consumers or buyers and us usually backed by the ability and willingness to purchase the product. Demand has an inverse relation with the price which means that when the price of soft drink increases, it would eventually decrease the demand of soft drink. On the other hand, Supply means the quantity of the products offered by the industry or market at a certain level of price. Supply has a direct relation with price which shows that whenever the price of soft drink increases the supply will also increase. Equilibrium is a state where the demand and supply are equal. It means that the amount of soft drink being supplied is equal to the amount that is demanded by the buyers (McEachern, 2012). The diagram shows that equilibrium occurs when the demand and supply of the product is equal. This is the most favourable position as this is the most efficient point for an industry to be at. It means that the demand of the product is equally matched with the supply of the product (McEachern, 2012). Soft drinks are included in monopolistic market where the number of firms that operates in the market are many and provides differentiated products to the buyers. These products are not identical but are differentiated and each soft drink in the market is clearly differentiated from others. Entry and exit in this market is easy creating shifts in the market (McEachern, 2012). The possibility of shifts in demand and supply are as follows: Demand Changes in price When the price of soft drinks increases the demand for soft drinks will eventually decrease which means that the buyers will reduce their purchases. On the other hand when the price of the soft drink decreases the demand will rapidly rise. This shows that price has an inverse relation with demand which means that rise in price will lead to fall in demand (Taylor and Weerapana, 2009). Availability of substitute goods Demand is inversely proportional to the availability of substitute goods. This means that increase in substitute goods will decrease the demand of soft drinks. The more substitute products become available in the market the less is the demand for the product (Taylor and Weerapana, 2009). Changes in income The demand for soft drinks can also be affected by changes in the income. As income rises the demand for the soft drinks will ultimately increase and the demand curve will shift to right side. Similarly, when the income decreases the demand for the soft drink will decrease and the curve will shift to left side which shows deficit (Taylor and Weerapana, 2009). Supply Changes in price of goods When the price of soft drinks increases the supply for soft drinks will eventually increase (Taylor and Weerapana, 2009). Changes in price of related goods When the price of related goods increases the supply for soft drinks will eventually increase as there will be more demand for the soft drinks (Taylor and Weerapana, 2009). Changes in price of inputs The price of the inputs or ingredients used to produce soft drinks also causes the supply curve to shift. An increase in price of inputs will ultimately decrease the supply of soft drinks from the suppliers. This will be done to cover up the cost incurred by the suppliers due to increase in the prices of the inputs. Similarly, decrease in the price of inputs w ...Show more