Case study

Market Decisions

The Power of Markets : Who Feeds Paris ' begins with the story of Coca Cola in East Germany . The story takes place at a time when the East German currency is entirely worthless . Regardless of the health benefits or risks of the beverage , the head of Coca Cola Europe decides that the drink must be given away for free as a friendly introduction Free coolers are also given merchants that agree to sell Coca Cola When the drink starts to sell well in East Germany , it is not because of its

health benefits . Rather , it is because East German consumers have started to enjoy the beverage . After all , in a perfectly competitive market , the consumers ' goal is to maximize utility , while maximization of profits is the goal of producers - regardless of whether the product or service in question appears to be beneficial for everybody at the same time

When the author of The Power of Markets : Who Feeds Paris mentions markets , perfect competition is his or her focus . In perfect competition , prices are known to automatically move to economic equilibrium and the quantity demanded equals the quantity supplied . If the price is raised beyond the equilibrium price , market forces push the demand of the product or service down , as buyers turn to substitute products or services . When prices are below the equilibrium - a standard (or balanced ) price at which buyers and sellers are equally satisfied - the demand of the product or service is expected to increase . This is the...