N2010

Sugar
Intro: The interaction between demand and supply will affect the
market for non-diet and diet canned drinks. Demand is the
willingness and ability of consumers to consume a good or service
at all price levels at a given period of time, ceteris paribus Supply is
the willingness and ability of suppliers to supply a good or service at
all price levels at a given period of time, ceteris paribus.
Non-diet and diet canned drinks are manufactured goods and may
be considered as substitutes for some people. This essay seeks to
examine the various demand and supply factors affecting the nondiet and diet canned drinks market and its affects on consumer
expenditure using the concept of elasticity.
Sugar is a factor of production for non-diet canned drink. With the
fall in price of sugar, there is a fall in cost of production in non-diet
canned drink and hence supply for non-diet canned drink will
increase. Price elasticity of demand refers to the responsiveness of
quantity demanded of good to a change in its price, ceteris paribus.
Due to the large number of substitutes such water and fruit juice
available, non-diet drinks are likely to be price elastic. This means
that a change in price would lead to a more than proportionate
change in quantity demanded, ceteris paribus.
This can be seen in the diagram below where supply shifts to the
right from S0 to S1 and demand remains constant and is price
elastic. Price will fall from P0 to P1 and quantity demanded will
increase from Q0 to Q1. Consumer expenditure is derived from the
product of price and quantity. Hence, if the demand for non-diet
canned drinks is price elastic, consumer expenditure will increase
from P0AQ00 to P1BQ10.

However, demand for non-diet canned drinks may be inelastic due

to the small proportion of income spent and it being a habitual good
for some people. Hence, an increase in supply that will result in a
fall price, will lead to a less than proportionate increase in quantity

demanded, ceteris paribus. Consumer expenditure will decrease

from
The demand for non-diet canned drinks will fall in the light of
healthy living campaign aimed at changing the taste and
preferences of consumers for sugary canned drinks.
Demand will fall from D0 to D1 and price will fall from P0 to P1.
Quantity demanded will fall from Q0 to Q1. Total expenditure will fall
from .
Hence, the combined effects an increase in supply and decrease in
demand will cause consumer expenditure to fall when the price
elasticity of demand for non-diet canned drinks is price inelastic.
When the price elasticity of demand for non-diet canned drinks is
elastic, the effect on consumer expenditure is indeterminable.
To determine the effect on consumer expenditure, we will need to
look at the magnitude of shifts of supply and demand.
If the healthy living campaign is successful, demand will decrease
by a greater extend than the increase in supply for non-diet canned
drinks. From the diagram below, supply increases from S0 to S1 and
demand fall from D0 to D1. Hence, expenditure decreases from
If the healthy living campaign is not successful, demand will
decrease by a smaller extend as compared to the increase in supply
for non-diet canned drinks. From the diagram below, expenditure
will increase from when supply increases from S0 to S1 and demand
falls from D0 to D1.
Hence the relative change in consumer expenditure will depend on
the success of healthy living campaign for consumers. The likely
effect will be a fall in consumer expenditure for non-diet canned
drinks unless the campaign is non successful and consumers
demand for non-diet canned drink is price elastic.
With the success of the healthy living campaign, consumers are
likely to switch from non-diet canned drinks to diet canned drinks
which is a healthier choice as it does not contain sugar as
mentioned in the preamble. Demand is likely to increase due to this
change in taste and preference.
From the diagram below, demand increases from D0 to D1 and price
increases from P0 to P1 and quantity demanded increases from Q0
to Q1. Consumer expenditure will increase by .
Cross elasticity of demand is the responsiveness of demand of good
A to a change in price of good B, ceteris paribus. As mentioned

earlier, the price of non-diet drink has fallen. Since diet and non-diet
canned drinks are substitutes, the fall in price of non-diet drink will
lead to a fall in demand for diet drinks in favor of non-diet drinks,
which are cheaper.
The extent of the shift of demand will depend on the cross elasticity
of demand of non-diet drinks and diet drinks. If they are close
substitutes, cross elasticity of demand is positive and more than 1, a
fall in price of non-diet canned drinks will lead to a more than
proportionate fall in demand for diet drinks. They are close
substitutes as there is little difference in the taste of the drinks.
However, they may not be considered as close substitutes for some
consumers due to the different ingredients in the drinks and some
may consider the taste of the drinks to be vastly different. Hence
the cross elasticity of demand is positive but less than 1. This means
that a fall in price of non-diet drinks will result in a less than
proportionate fall in diet drinks.
The effect on consumer expenditure on non-diet drinks will depend
on relative effects of healthy living campaign as well as the cross
elasticity of demand for diet and non-diet drinks. If the cross
elasticity of demand is more than 1, the net effect on demand for
diet canned drinks will be a fall in demand. This will mean a fall in
consumer expenditure. If the cross elasticity of demand is less than
1, the net effect on demand for diet canned drinks will be an
increase in demand. This will mean an increase in consumer
expenditure.
In conclusion, the effect on consumer expenditure for non-diet
canned drinks will depend on relative elasticity of demand. If it is
price inelastic, consumer expenditure will definitely fall, whereas, if
it is price elastic, the success of healthy living campaign will
determine whether consumer expenditure will fall or not. The effect
on consumer expenditure for diet drinks will depend on the cross
elasticity of demand between non-diet drinks and diet drinks.