ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the price of Coca Cola increases, for example, the demand for Pepsi Cola will increase. If the price of a substitute good increases, this will result in an increase in demand for the original product.

Detailed explanation-2: -If the price of Pepsi decreases relative to the price of Coke and 7-up, the demand for Coke and 7-up will increase. Law of demand states that when price increases, the demand for the commodity falls and when price decreases, the demand for the commodity rises.

Detailed explanation-3: -For Coke the demand curve shifts to the left and the supply curve does not change. The equilibrium price and quantity in the market for Coke decrease. This is because Pepsi and Coke are substitutes.

Detailed explanation-4: -A cross-price elasticity of 0.63 implies that a 1% increase in the price of Pepsi would increase the quantity of Coke demanded by 0.63%. Therefore, a 5% increase in the price of Pepsi would increase the quantity of Coke demanded by five times as much, that is, by 5 x 0.63% = 3.15%.