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Posts: 178
3 months ago

Question 1.

Explain why a local bottler of PepsiCo products would likely prefer a national soda tax to a local soda tax in its region.

Question 2.

Explain the concepts of cross-price elasticity of demand and income elasticity of demand. What do positive and negative values indicate for each of these demand elasticities?
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Microeconomics
Edition: 7th
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Answer verified by a subject expert
wrote...
Posts: 198
3 months ago
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Answer 1

A local bottler would likely prefer a national soda tax because a local tax would probably reduce sales in its region as some consumers in that region would switch to buying products outside the region where there is no tax. A national tax would affect all consumers no matter where they made their purchases, so there would be no reason for consumers to shop outside the region.

Answer 2

Cross-price elasticity of demand measures the percentage change in quantity demanded of one good based on the percentage change in the price of another good. If cross-price elasticity is positive, the two goods are substitutes. If cross-price elasticity is negative, the two goods are complements.

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income. If income elasticity is positive but less than one, the product is a normal good and a necessity. If income elasticity is positive and greater than one, the product is a normal good and a luxury. If income elasticity is negative, the product is an inferior good.
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3 months ago
Thank you, thank you, thank you!
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3 months ago
You're welcome
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