Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ________ and PepsiCo's ability to raise revenues through price increases ________.
A)increased; was reduced
B)increased; increased
C)decreased; was reduced
D)had no effect; was reduced

Question

Quizplus · Accepted Answer

The price elasticity of demand tends to be higher for goods that have more close substitutes.  When demand is elastic, total revenue increases when price decreases, and total revenue decreases when price increases.

Diet Coke Is a Close Substitute for Diet Pepsi