Q. Due to rising food costs, our vending contractor, Royalle Vending, will implement a slight price increase on all carbonated drinks from $1.25 to $1.50 beginning this fall 2012 semester at all campuses. This is the first time since Royalle Vending was awarded the contract in January 2010 that the company has implemented any price increases. The price of bottled water will remain unaffected at $1.25.
For increased healthier options, look for new premium juices to be added to select vending machines at $1.75.
Why do you believe Royall Vending isn't increasing the price of bottled water as well?
What do you think the sign and magnitude of the Cross-Price Elasticity of Demand would be between premium juices and soda? What do you think the sign and magnitude of the Cross-Price Elasticity of Demand would be between premium juices and water?
What sales data would provide evidence that your hypothesis is likely correct?