Problem and Applications Question 24 A bige Cotta-Coba vendor rettently hired some ettonomitt analysts to assess the effettt of a pritte inttrease in its 16-ountte bottles from $1.00 to $2.00. The ana lysts determined that, on a vera ge, the vendors thustomers spend about $15.00 on soda (Coke and all other brands) eatth week, and the average pritte for other 16-ountte soda bottles is $1.00. The analysts abo u-lied some fottus groups to determine the preferentles of the vendor's ttustomers. They used this analysis to build the following graph: Suppose Ko = 9 and Kj = 7.Should the vendor expettt to sell 7, more than 7, or less than 7 bottles of Coke a'er raising the pritte to $2.00 if Coke is a normal good? Bottles of Budget line with price of Other Soda $1.00 Budget line with price of $2 00 Bottles of Cake Tite consumption of coke will alter in response to increase in price as a result of two effects - ttte income effect and tite substitution effect. Considering Coke is a normal good, a price increase will definitely not lead to an increase in tite consumption of coke - tite vendor cannot expect to sell more titan 7 bottles of coke. Coke and ottter soda's are substitutes - an increase in ttte price of coke will lead to a de crease in ttte consumption of coke and an increase in tite consumption of ottter sodas. Bottt tttese effects can lead to tite condusion titat tite vendor stwould expect to sell less titan 7 bottles of Coke after ttte increase in price