Bottles of Coca-Cola and equally-sized bottles of Pepsi Cola are perfect substitutes for a consumer, but a bottle of Coke costs 10 cents less than bottles of Pepsi.The income effect of a 15 cent increase in the price of Pepsi will be for the consumer to drink less cola.

Question

Quizplus · Accepted Answer

If the consumer views Coca-Cola and Pepsi as perfect substitutes, an increase in the price of Pepsi would lead the consumer to switch to Coca-Cola rather than reducing overall cola consumption, assuming the price of Coca-Cola remains unchanged.

Bottles of Coca-Cola and Equally-Sized Bottles of Pepsi Cola Are