A Reflection on Pepsi's Price & Income Elasticity Essay

910 Words Aug 4th, 2014 4 Pages
Pepsi, A reflection on its price & income elasticity
Laura-Ashley Williams
Colorado Technical University

Author Note
This paper was prepared for [ECON212], [CS13-01], taught by [Professor James Pirner] on [July 23, 2014]. Introduction
The product chosen was Pepsi. It is a product produced by PepsiCo, which is one of the world's top marketer of premium juices and soft drinks. PepsiCo offers products to over 200 countries and territories, and our Global Brands are our biggest sellers. Pepsi is a carbonated soft drink sold in stores, restaurants, and vending machines internationally. Pepsi-Cola was created in the late 1890s by Caleb Bradham, a New Bern, N.C. pharmacist. Pepsi is one of the world’s most iconic and recognized
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So even if there is an increase in the price of Pepsi, the consumers will probably shift their consumption from Pepsi to drinks that are related substitutes. According to economic theory, if many substitute goods are available, then demand is price elastic (Shmoop Editorial Team, 2008). The price elasticity for soft drinks will be less elastic than the price elasticity for colas, which in turn will be less elastic than the price elasticity of Pepsi. Pepsi's Income Elasticity Income elasticity of demand refers to the sensitivity of the quantity demanded for a certain product in response to a change in consumer incomes. As incomes rise, more goods are demanded at each price level. The quantity demanded for normal necessities will increase with income, but at a slower rate than luxury goods. Income elasticity can be positive or negative. Pepsi is a normal good that has positive income elasticity. It shows the way in which consumers purchase any good as a result of change in income. Income is an important variable affecting the demand for a good. The income elasticity shows the way in which consumers purchase any good as a result of change in income (Shmoop Editorial Team, 2008). As there is positive relationship between incomes of the consumer and quantity demanded for Pepsi, so we can say that Pepsi is a normal good. Important Cross- Elasticities When goods