Suppose the makers of 7UP develop a new technology that makes production more efficient. At the same time, Sprite’s price goes up. What would we expect to happen to the price and quantity sold of 7UP?

Question

BlackTom AI · Accepted Answer

A technology improvement for 7UP shifts its supply curve right (more efficient production → increased supply). A rise in Sprite’s price makes Sprite less attractive relative to 7UP (they are substitutes), so consumers switch toward 7UP, shifting 7UP’s demand curve right.

1. Relevant knowledge points and concepts
- Supply shift right (increase in supply) puts downward pressure on equilibrium price and upward pressure on equilibrium quantity.
- Demand shift right (increase in demand) puts upward pressure on equilibrium price and upward pressure on equilibrium quantity.
- When supply and demand shift in opposite directions for price, the net effect on price is ambiguous (depends on magnitudes); the effect on quantity is unambiguous if both shifts increase quantity.

2. Step-by-step reasoning
- Step A: Technology makes production more efficient → sellers can supply more at each price → supply curve shifts right (S → S′).
- Step B: Sprite’s price increases → some consumers substitute away from Sprite toward 7UP → demand for 7UP increases → demand curve shifts right (D → D′).
- Step C: Combine the two shifts: both changes increase equilibrium quantity (supply right and demand right both raise Q*). For price, supply-right tends to lower P*, demand-right tends to raise P*. These forces work in opposite directions for price, so the net change in P* cannot be determined without knowing relative shift magnitudes.

3. Intermediate “calculation” / graphical logic
- Initial equilibrium: intersection of S and D at (P0, Q0).
- After shifts: S′ intersects D′ at (P1, Q1) where Q1 > Q0 always, P1 could be >, =, or < P0 depending on how far each curve moved.

4. Why the correct answer is correct
- Because quantity unambiguously increases and price is ambiguous, the correct choice is the option that states “price indeterminate and quantity goes up.”

5. Why other options are incorrect
- (a) Incorrect: supply increase alone would lower price, but demand also increases so price is ambiguous; quantity is not indeterminate (it rises).
- (b) Incorrect: quantity will not go down—both shifts raise quantity.
- (c) Incorrect: price is not guaranteed to go up (opposing supply effect); quantity is not indeterminate.

6. Conclusion
- Therefore, the equilibrium price is indeterminate and the equilibrium quantity will go up, matching answer d.

Suppose the makers of 7UP develop a new technology that makes production more efficient. At the same time, Sprite’s price goes up. What would we expect to happen to the price and quantity sold of 7UP?单项选择题

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