Assignment Questions
Part I (1/3). News article: “Coca-Cola has developed a soft-drink vending machine that adjusts the price according to the weather. Price rises during warm weather and decreases during cooler weather.”
Think of a Coke machine in terms of market economics, that is, as having demand and supply. (You may find it helpful to illustrate for yourself.) Assume the supply curve is vertical to reflect that the machine gets refilled on some frequency, such as weekly. (In other words, price does not affect quantity supplied.)
a) What is the benefit to consumers of price increasing in hot weather? (Tip: imagine you and another person walked up to a machine and there was only one can left in it.)
b) Which core (basic) question is being resolved by price increasing in hot weather in soda machines?
c) The prevailing system of machines having just a fixed price has what effect on pricing (causes the fixed price to effectively act as what) during hot weather ?
Note: this section (Part I) is not concerned with effects on the CocaCola company (such as sales, costs, profits, etc.), so do not address these. And, as mentioned above, assume that quantity supplied does not change with price.
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