Econ 2301 Written Assignment Lastname Firstname

2econ 2301 Written Assignmentlastname Firstname

Part I (5 0%). 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) Economically, 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) economic question is being resolved by price increasing in hot weather in soda machines?

c) The prevailing system of machines having just a fixed price, although not set by government, has what effect on pricing (causes the fixed price to effectively act as a 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. Also , note that the name, “Coke”, is spelled with capital “C”.

Paper For Above instruction

The development of temperature-responsive pricing in Coca-Cola’s vending machines exemplifies fundamental economic principles surrounding demand, supply, and pricing strategies within a market. By analyzing the scenario where demand fluctuates with weather conditions, we can understand the practical benefits for consumers, as well as the implications for market equilibrium and pricing structure.

The first point of interest is the benefit to consumers when prices increase during hot weather. In such conditions, demand for cold beverages like Coke typically rises—as it becomes more desirable to quench thirst and cool down. When the vending machine raises prices in response to higher demand, consumers face a situation where they might choose to pay more for a cold drink rather than go without. This benefits consumers by allowing them to express their willingness to pay for enhanced comfort during warm weather. If only one can remains at the higher price, the consumer who is willing and able to pay the increased price secures the product, effectively allocating scarce resources (in this case, the last can of Coke) to those most willing to pay, thus maximizing consumer satisfaction relative to their preferences (Varian, 2010). This dynamic showcases how price signals help consumers make efficient choices, especially during periods of heightened demand.

The core economic question addressed by increasing prices in hot weather is "How should the limited supply of a good be allocated among consumers?" In economics, this question relates to the allocation of scarce resources, and pricing acts as a mechanism to ration products. When prices rise with demand, the market naturally prioritizes consumers who value the product most highly, reflected in their willingness to pay. This process ensures the efficient distribution of goods without requiring any direct interventions or regulations (Mankiw, 2018). It also signals to producers or suppliers about the increased consumer preference, encouraging potential adjustments in supply or production levels over the longer term. Although in this scenario the supply is fixed, the price still helps resolve the question of who gets the limited resource during periods of higher demand.

The third consideration involves the typical fixed-price system, which acts as a price ceiling in this context. Unlike dynamic pricing, fixed prices do not fluctuate with demand; thus, during hot weather, the established fixed price effectively serves as a binding price ceiling. This causes a disparity where the quantity demanded exceeds the quantity supplied at that fixed price, leading to shortages or unmet demand during high-demand periods. Consumers willing to pay more are unable to do so because the fixed price caps the cost, resulting in what economists call a market distortion. This situation often causes long lines, rationing, or a reduction in consumer surplus. Introducing a variable pricing system mitigates this effect by allowing prices to reflect real-time demand, thereby clearing the market more efficiently (Perloff, 2020).

Paper For Above instruction

The concept of adjusting prices in vending machines based on weather conditions illustrates the fundamental economic principle of demand elasticity and how market prices serve as signals to allocate scarce resources efficiently. When consumers face higher prices during warm weather, they benefit by gaining access to the desired product—cold Coca-Cola—without the need for rationing or external controls. This dynamic benefits consumers who highly value the cold beverage, as they are willing to pay a premium during peak demand periods. These price adjustments are especially advantageous because they stimulate competitive behavior among consumers, allowing the most willing buyers to purchase the limited product while discouraging less urgent demand.

Fundamentally, the core economic question resolved by increasing prices in hot weather is how to allocate limited resources efficiently among competing consumers. Price acts as a universal mechanism for rationing, ensuring that those who value the product most highly are able to obtain it. Without such a mechanism, fixed or non-variable pricing models can lead to inefficiencies and shortages during times of increased demand. Fixed prices, which are common in traditional vending machines, suppress the natural market response, effectively acting as a price ceiling that constrains the market during periods of high demand. This results in shortages or increased waiting times, diminishing overall market efficiency and consumer satisfaction. Therefore, implementing weather-sensitive pricing schemes allows markets to better respond to fluctuating demand patterns, ensuring a more equitable and efficient distribution of resources.

References

• Varian, H. R. (2010). Intermediate Microeconomics: A Modern Approach. W.W. Norton & Company.
• Mankiw, N. G. (2018). Principles of Microeconomics (8th ed.). Cengage Learning.
• Perloff, J. M. (2020). Microeconomics (8th ed.). Pearson.
• Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics (9th ed.). Pearson.
• Frank, R. H. (2018). Microeconomics and Behavior (9th ed.). McGraw-Hill Education.
• Krugman, P., & Wells, R. (2018). Microeconomics (6th ed.). Worth Publishers.
• Schmidt, M. (2014). Market Dynamics and Pricing Strategies. Journal of Economic Perspectives, 28(2), 87-106.
• Samuelson, P., & Nordhaus, W. (2010). Economics (19th ed.). McGraw-Hill Education.
• Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and Policy. Cengage Learning.
• Hubbard, R. G., & O'Brien, A. P. (2018). Microeconomics (6th ed.). Pearson.