Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks?I. The demand for soft drinks decreases.II. The quantity of soft drinks demanded decreases.III. The supply of soft drinks decreases.IV. The quantity of soft drinks supplied decreases.
Are okorder /... so less than $.02 per can. So even if aluminum costs doubled, the extra $.02 per can would be too small to change any retail prices over. (Note how many retail prices end in .99 because of psychological reasons rather than reflecting real costs.) No change in price, no reason for demand to change. Suppliers will lose money, but they won't lose enough to change their production levels. If aluminum costs rise even more, packagers will look for a cheaper option. They already moved from glass bottles to steel cans and then to heavy 3 oz. aluminum cans. And over the years, they've been cutting back on the amount of aluminum per can. Why assume technology is at a standstill? Of course the classic Ec 1 theory answer is that in a competitive market, profit margins are low so any increase in costs have to result in higher prices. For normal goods, higher prices mean lower sales.
