Which of the following will occur in the market for soft drinks if the money price of soft drinks incre
I. The relative price of soft drinks increases.
II. The substitution effect may cause people to switch to drinking bottled water.

Question

Quizplus · Accepted Answer

If the money price of soft drinks increases, then the relative price of soft drinks increases as well (I). This means that soft drinks become relatively more expensive compared to other goods. As a result, the substitution effect may cause people to switch to drinking bottled water as a substitute for soft drinks (II). Therefore, both I and II are correct.

Which of the Following Will Occur in the Market for Soft