GROUP ASSIGNMENT

MANAGERIAL ECONOMIC
(EEB 20703)

Name
NUR AMIRAH FATIHAH BINTI MOHD ARIFIN
AMIRAH BALQIS BINTI AZHAN
MOHAMAD SHARULIKHWAN BIN MOHAMAD

Id
62215215138
62215215145
62215215261

SAMIZI
MUHAMMAD ARIF BIN MAT SOM

62215215456

NAME OF LECTURER : MOHD DAN BIN JANTAN

DATE SUBMISSION

: 1 APRIL 2016

Introduction
In order to fulfil the course outline for Managerial Economic subject, students who take
part in this subject should come out with one group assignments. This group project represents
25% out of 60% for our carry marks. The students need to choose their group members consists
of 3-4 for each group. Through this group assignment, each group need to choose one company
that produces any good or a group of a goods.
As a group work, we need to analyse the good based on the determinant of the demand.
The main objective of this assignment is to know the behaviour of the consumer when the prices
of a product increases or decrease and to analyse the change in demand due to some forces in the
market. As for this, we choose the Coca-Cola product from F&N Beverages Marketing Sdn Bhd
as this company is established as the most influenced market in the carbonated soft drink and the
most company that has the highest income rather than PepsiCo and Cadbury-Schweppes in
Malaysia.
The carbonated soft drink industry is one that is very competitive and was leading by
three most notably company which are Coca Cola, PepsiCo and Cadbury-Schweppes. These
three companies compete each other to be the most leading company in the carbonated soft drink
market. In 1936, F&N becoming one of The Coca-Cola Companys earliest franchisees in Asia.
The company build well established 68-year relationship with the agreement with the Coca-Cola
Company.
With many strong products, it is natural that Coca cola has a lot of customer loyalty. As
for this, the demand for the Coca-Cola is the most higher that the other two company that
provides the similar lines of product in the market.

Background of Coca-Cola
Coca-Cola was inverted by Doctor John Pemberton, a pharmacist from Atlanta, Georgia
in May 1886 while the name and logo was scripted by Frank Robinson. Coca-Cola which is also
known as Coke is a popular carbonated soft drink sold in stores, restaurants and vending
machines for over two hundred countries that is produced by the Coca-Cola Company. It is now
has grown to become one of the worlds biggest and most successful companies. Today, the
Coca-Cola Company operates in over 200 countries with nearly 450 brands. The headquartered
is at Atlanta and they employed approximately 90500 employees all over the world.
F&N Beverages Marketing Sdn Bhd is Malaysias largest beverage manufacturer and
distributor of soft drinks, is today a company worth as much as $3 billion with total workforce of
1,650 employees in 22 offices throughout the country. The headquarters of this company where
is located in Shah Alam, Selangor engage in three manufacturing plants nationwide. In 1936,
F&N becoming one of The Coca-Cola Companys earliest franchisees in Asia. They also commit
to a mandate of one system that is one vision and one goal; to serve Malaysian customers better
in a certain ways and advance their share of the RM 2 billion ready- to - drink market. F&NCC
adapts an oligopoly market structure which is leading in the beverage firm for years. Over 130
years, F&N has become a household name in Malaysia. It started to engage regional expansion
for long run of production.
Because F&N is the one of the successful firms in Malaysia, it will also lead to the
successful of Coca-Cola product in the market. It is able to gain the brand loyalty among the
consumer in Malaysia.

Demand
An expert US economy, Kimberly Amadeo demand is the consumer's need or desire to
own the product or experience the service. It is constrained by the willingness and ability of the
consumer to pay for the good or service at the price offered. Demand is the underlying force that
drives everything in the economy. Fortunately for economics, people are never satisfied. They
always want more. This drives economic growth and expansion. For the demand curve is a curve
or a schedule that depict graphically on how many goods and services are bought at various
prices during a certain period of time. It is also known as quantity demanded of that good.
Law of Demand
Law of demand refer to the principle that there is an inverse relationship between a price
of a good and the quantity that buyers are willing to purchase in a certain period of time. From
observation of law of demand, we would be able to identify the substitute effect which the
tendency of the people to substitute the goods for the cheaper goods. Also we would be also to
determine the real-income effect which is the change in purchasing power that occurs when the
price of a good changes.

For example, if the goods is decreasing their prices, the consumers will buy more and vice versa,
it can be shown by the graph above. When the price of the good increase, demand decrease.

Determinants of Demand

Price
The law of demand stated that when the prices rise, the quantity demanded falls and vice

versa. This is because people will purchased the goods based on the price. For example, when
there is a sale in a mall at a certain time, people will purchased more as the price at that time is
cheaper than usual. As for the Coca-Cola, it is become as a normal good for the consumer today.
Before this, Coca-Cola is not considered as one of the company that offer the lower price for
their product compare to PepsiCo. In order to grab back consumers attention, Coca-Cola
planned to lower their price in as to penetrate the new cities that were especially price sensitive
in early 1990s. However, because this strategy is unfamiliar in Coca-Cola, they change the
strategy by reposition them as a Premium brand, then raises the prices.
As for this, it creates consumer perceptions and values. The consumer believed that when
they buy Coca-Cola, they not only by the drink or beverages but also buy the name of the brand.
As for this, people are willing to buy the product even the prices is increased. A part of that, the
price for the product is affordable to purchase even though the price is increased. The consumer
will purchased it based on the price that they can afford. However, if the price for the Coca-Cola
increased rapidly, the demand will switch to the other product such as Pepsi, Mirinda and others.
As for this the demand for the Coca-Cola will fall.

According to the law of demand, the change in the price of Coca-Cola will lead to the
quantity demand fall. Base on the graph it can be shown as the price from P1 increase to the P2
and lead to the change in quantity demand from Q1 decreased to Q2.
However, if the price for the production is lower it will lead to the decreasing of selling
price for Coca-Cola. As for this, people will demand more the Coca-Cola product. Consumer
surplus would also increase since price has reduced and new consumers would enter the market,
further increasing demand.

Income
Other than that, the income also influence the demand for the goods. When the income

rises, the quantity demand will increase. If people get more income, they will purchased more
even the price is not change. When as a result of the rise in comes for the consumer, the demand
increases and the whole of the demand curve shifts upward and vice versa. Higher income could
occur for a variety of reasons such higher wages and lower taxes. Many know that Coca-Cola
became as a normal goods nowadays as Coca-Cola has become one of the most beverage brand
and almost 1.6 billion people each day drink it. Normal good is something for which demand
increases as income increases (Sloman and Wride et al., 2012).

As income went up the demand of cola will rises and vice-versa but when income falls,
the demand for the good will decrease. The greater income means the greater purchasing power.
Therefore, when incomes of the people increase, they can afford to buy more Coca-Cola. It is
because of this reason that the increase in income has a positive effect on the demand for the
good. When the incomes of the people fall they would demand less of the goods and as a result
the demand curve will shift below. For example, when people's salary rises, they able to afford to
purchase more Coca-Cola so lead demand increase. However, even though the consumer's
income rises, they still continue purchasing Coca-Cola instead of finding other substitution due
to the brand loyalty.

This can be shown by a shift in the demand curve. When the demand for a product
increases, the demand curve shifts to the right. As it can be seen in the diagram below, as the
demand for the Coca-Cola increase, the demand curve shift from D1 to D2 and the quantity
shifts from Q1 to Q2.

Substitutes
From Wikipedia, substitute goods or substitutes are products that a consumer perceives as

similar or comparable, so that having more of one product makes them desire less of the other
product. Formally, X and Y are substitutes if, when the price of X rises, the demand for Y rises.
Beverage industry is close substitutes for one another. So, that is have a high and positive cross
elasticity of demand when the good are substitute of each other. For substitutes, a rise in the price
on the goods will increase demand for the alternative good because opportunity cost of buying
the good became very high. Coca-Cola and Pepsi are substitutes for each other.
For instance, if the price of Coca Cola was to increase sharply, many consumers would
turn to other kinds of cold drink such as Pepsi and as a result, the quantity demanded of Coca
Cola will decline very much. On the other hand, if the price of Coca Cola falls, many consumers
will change from other cold drinks to Coca Cola. As for this, the demand curve would change its
position whether it will shift upward or downward regarding to the price of the original good.

Supposed the price of Coca-Cola rises from P1 to P2 because one of the inputs rises in
price cause people to consume less Coca-Cola, quantity decreases from Q1 to Q2. As for the
Pepsi, demand curve shifts out for all price levels, from D1 to D2, leading to more demand from
consumer.

Taste
One of the important factors that determine the demand for the goods

of the products is about the taste and preferences of the consumers into it.
According to the law of demand, the demand curve will lie at the higher level
and people will demand more if the goods for the consumers taste and
preference are greater. In microeconomics, the first thought that springs to
mind when we examine about the perfect substitute between Coca Cola and
PepsiCo. Since these two goods is essentially having the same taste and
have similar price in the market, it could expect that the demand for both
products is similar. However, the market share that was estimated in
Australia for example, the Coca Cola are outsells if compared to the PepsiCo
by around three times in Australia market and for about five to six times in
the whole Cola market.
The demand for the Coca Cola will change as the peoples taste and
preference for the various goods often change due to the economic growth.
The demand of the product usually changes in various goods that occur due
to the fashion and also due to the pressure of advertisement by the
manufacturers and seller of different products. As for example, past few
years when the Coca Cola plant was established in New Delhi, the demand
for it was too low. But, because of the large advertisement and publicity was
done time to time, the peoples taste for the Coca Cola was undergone a
change and become favorable among the citizens. I

From the graph, we can see that there have increase in demand where
the curve if shifting to the right which results in an increase of both
euqilibrium price and the quantity. This is easily visible by looking at the red
dots that marked as 1 and 2. Initially, at the first point Coca Cola is stated at
equilibrium point 1 and after doing a lot of advertising about their product,
the graph are moving to the equilibrium point 2. It means that the prices for
their effort in advertise their product have gone up, as well as the total
quantity of the goods that they are using now.
Other proved that increase the demand for the Coca Cola is because
the PepsiCo had experienced into the bankruptcy twice in the market until it
being bought out by Loft Inc which is a candy manufacturer. So, in this case,
the demand for the taste and preference of Coca cola is change due to the
changes of the environment since there is more advertisement about the
Coca Cola product if compared to PepsiCo and that is why Coca Cola is
dominating the market. It was because, the desire of customers towards the
products can affect the demand curve. The higher the level of customers
interest, the demand curve shift to the right and the less interest into it, the
demand curve will shift to the left

As for the result, the demand for the Coca Cola has increased rapidly.
In term of economics, it proved that the demand curve for Coca Cola has
shift upward. In contrast, if any good goes out of fashion or the peoples
taste and preferences are no longer remain favourable; the quantity
demanded for the goods will decrease. The demand curve for these goods
will shift downward.

Population
Another factor that determines the demand is the number of

consumers in the market or in other words is population. The market demand

for a good is obtained by adding up the individuals demands and the present
as well as prospective consumers or buyers of a good at various possible
prices. The greater the number of consumers of a good, the greater the
market demand for it and vice versa.
Often in economies, it is stated that an increased in the number of
consumers will increase in demand. As for example, if KipMart make a sale
on Coca Cola, what will happen to the demand for Coca Cola? It will not
change in anything because changes in prices do not affect the demand
schedule, but if KipMart make a sale on Coca Cola, it will increase the
number of consumers buyers. If referred to the law of demand it stated that
if the price goes down, the quantity demanded will goes up and it is vice
versa. Because of that, the demand for the PepsiCo will goes down since the
customers would prefer to buy the Coca Cola form KipMart because of their

sales. It is proved that if the number of potential customers is change, the

demand for the goods also will change.
Other circumstances that change the number of potential customers
are because of population change. As for example if a new housing
development is built in the empty field behind a small store, the number of
potential consumers will increases and the demand of the goods also will
increase. Expanded in marketing area also will change the demand curve for
the goods. Expanded in marketing area is just like when PepsiCo are used to
sold only at the West so that the customers do not have much choices since
they could not buying at anyplace else. But as for the Coca Cola, they are
expanding to all states and because of that, the demand for their goods will
increase since they have more potential customers globally.
Besides, the circumstances that affect the demand curve of Coca Cola
and PepsiCo are by having new competitors. Having new competitors may
lead to the decreasing of the demand curve and due to that, the demand
curve will fall and shift to the left and not the market demand curve. As for
instance, if Fanta is coming with a low price into the market that Coca Cola is
already exist, the demand for the Coca Cola will decrease since the potential
buyers are eager to try the new taste of Fanta. It is because, the consumers
tend to buy a new product with a low price so that is why the demand for the
Coca Cola will decrease where the demand curve shift to the left and the
demand for the Fanta will increase and the demand curve will shift to the
right. In the graph below, from D0 to D2 shows the demand curve for Coca

Cola shift to the left because they are competing with the new competitors
so that the demand for their goods will fall down while from D 0 to D1 shows
the demand are shifting to the right since the demand for the new products
which is Fanta are going up because the customers want to try the new taste
of the goods.

Last but not least is about the growth in population. This will cause for
the increasing in the number of consumers and due to that, the demand for
the goods will increase. As for example, in India, the demand for Coca Cola
has increased because they are facing with the increase in population of
their country. Due to this matter, the demand for Coca Cola will increase
more if compared to PepsiCo because Coca Cola are offering a variety of
taste of Coca Cola and it is eligible for everyone. Even PepsiCo have a similar
taste with Coca Cola but the customers are preferred to choose Coca Cola
because Coca Cola is already exist in Indian market.

Future price
Soft drink sales in developed nations face significant headwinds as a

growing number of substitutes compete for consumer. Since people are likely
to significantly increase their overall beverage intake, beverage industry
sales are relatively fixed growing only as quickly as the population. Coca-Cola
is making them more appealing via price discounts. However, there are a few
problems with that approach. First, Coca-Cola's actions could spark a price
war with PepsiCo.

If PepsiCo were to match Coca-Cola's discounting, its

volume advantage would shrink and all two companies' margins would fall.
The result would be disastrous for the soft drink industry.
Each company had their plan for the future because want to maintain
the operation of business and get strong to one year to one year. So for the
PepsiCo they make some innovation to product and price to make sure that
the product become stronger and can attract more customer to buy the
product. Pepsi has announced that they will be releasing limited quantities of
"Pepsi Perfect," the future version of the soft drink Marty McFly encounters at
Cafe 80's in the film. Pepsi also has released a Pepsi Perfect commercial to
mark the occasion. Six thousand five hundred bottles of the soda will be
made available, with each coming with a special collectible case. Each bottle
with case of real-life Pepsi Perfect will cost $20.15.
Coca-Cola's recent promotions are driving sales gains in the quarter,
but the tactic could backfire in the long run. In order to avoid tarnishing their

brands and sparking a costly price war, Coca-Cola and PepsiCo need to
innovate their way out of the current industry malaise. Fortunately, two
companies show signs that innovation and consumer excitement are top
priorities. As a result, investors should not fear a price war unless Coca-Cola
maintains its promotions through the summer. This is good news for
shareholders and customer for this two companies.
Conclusion
As a conclusion, demand is the curve or schedule showing the various
quantities of a product consumers are willing to purchase at possible prices
during a specified period of time, ceteris paribus. Under the law of demand,
any decrease in price along the vertical axis will cause an increase in
quantity demanded, measured along the horizontal axis. Changes in nonprice determinants can produce only a shift in the demand curve and not a
movement along the demand curve, which is caused by a change in price.
Furthermore, supply is a curve or schedule showing the various
quantities of a product sellers are willing to produce and offer for sale at
possible prices during a specified period of time, ceteris paribus. Only at a
higher price will it be profitable for sellers to incur the higher opportunity
cost associated with producing and supplying a larger quantity. Under the
law of supply, any increase in price along the vertical axis will cause an
increase in quantity supplied, measured along the horizontal axis. Changes

in nonprice determinants can only produce a shift in the supply curve and
not a movement along the supply curve.
Graphically, the intersection of the supply curve and the demand curve
is the market equilibrium price quantity point. When all other nonprice
factors are held constant, this is the only stable coordinate on the graph.