Milestone 3 Sarah Brown Department of Business and Leadership, Regent University Dr Jeff Bajah ECON 230 Macroeconomics September 30, 2022 Introduction Coca-Cola is an internationally acclaimed company. Gaining the majority of their profit from the United States, their home country, and Mexico, one of their key markets, the company's growth is impacted by the economic condition of both countries. The structure of each country's respective banking system and their implementation of fiscal policies have noticeably contributed to the current economic growth of Coca-Cola. Consistently expanding as a widely successful corporation, Coca-Cola, like any other company, is susceptible to the repercussions of economic shifts in its home country and key market. Impact of National Banking Systems on Coca-Cola The Federal Reserve System, or “the Fed,” is the United States’ central banking system. Established by Congress to provide the US with a stable, safe, flexible monetary and financial system, the Federal Reserve System has been in use since 1913 (The Fed - What Is the Purpose of the Federal Reserve System? 2022, para 1). As a US-based company, Coca-Cola operates under the structure of the Federal Reserve System and is directly impacted by its policies. The Fed directly affects the economic well-being of the United States as its policies can either benefit or harm things such as employment and inflation. The Federal Reserve System has an impact that reaches beyond general economic concepts. The federal funds rate, controlled by the Fed, is the rate banks pay for overnight borrowing in the federal funds market. When the rate is low and comparatively cheap for people to borrow money, households are generally more likely to spend more on goods and services. More spending means companies like Coca-Cola gain more profit. An increase in profit allows for expansion in product lines and employment rates, contributing to overall economic growth. This policy, the federal funds rate, is just one example of how policies enacted and enforced by the Fed affect a company’s economic growth. Mexico, Coca-Cola’s key market, operates under its central bank system, Banco de México. Similarly to the Federal Reserve System, Banco de México’s main objective is to maintain a healthy, stable economy in Mexico. The system’s official website states that “low and stable inflation” is its top priority (Banco de Mexico, 2022, para 1). The effects of Banco de Mexico on Coca-Cola’s economic growth are not as direct as the Federal Reserve System’s but have a noticeable impact nonetheless. As the Banco de Mexico establishes and adjusts policies, it directly affects the economic health in Mexico and indirectly affects Coca-Cola as a good widely sold in Mexico. Affects of Fiscal Policies in the US on Coca-Cola Fiscal policy is defined as “Federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.” (Cowen & Tabarrok, 2020, chapter 37) Fiscal policies affect economic conditions such as aggregate demand for goods and services, inflation, employment, and economic growth. Post-covid era fiscal policies have sought to minimize the financial harm produced by the pandemic. The adjustment of fiscal policies impacts the economic development of Coca-Cola. For instance, the fiscal stimulus policies implemented after the COVID-19 pandemic had a significant role in mitigating dropping consumption levels of goods during the lockdown period and boosting the consumption of goods during economic mobility. This fiscal policy has helped the Coca-Cola company grow by supporting higher levels of goods consumption. While the company experienced an 11.4% decline during the peak Covid period, 2020, it was able to reach a 17.09% increase in the following year, 2021 (CocaCola Revenue 2010-2022 | KO, n.d.). While this regaining of growth cannot be entirely attributed to the fiscal stimulus policies, it is worth noting the significant improvement since the issue date of the first stimulus checks on December 31, 2020. Mexico’s Fiscal Policies in Relation to Coca-Cola’s Economic Growth Mexico’s use of fiscal policy through the upcoming implementation of their national budget will impact the country’s overall economic growth and the Coca-Cola company’s growth specifically. While Mexico’s budget reflects an optimistic financial outlook, it does seem to follow the country’s recent economic history. Including new numbers regarding expenses such as national expenditures and pensions, the Mexican budget does show that the policymakers prioritize maintaining stable Gross Domestic Profit and debt levels. Additionally, the 2023 budget shows a projected 9.9% increase in revenue, a 0.8% increase from the expected 2022 revenue increase. This increase can be partly attributed to the fiscal policy changes that produced higher interest rates resulting in higher borrowing costs (Mexico Budget GDP Assumptions Optimistic, Revenue Forecasts More Prudent, 2022, para 8). Higher revenue overall promotes economic growth amongst many companies. Coca-Cola benefits from these fiscal policies as one of Mexico’s most consumed goods. Thus, by directly impacting the nation's economic well-being, Mexico’s fiscal policies also influence Coca-Cola’s growth. Conclusion In conclusion, Coca-Cola has done exceptionally well in adjusting to the economic conditions of both the United States and Mexico in a way that benefits the company’s profitability and overall economic growth. Countries are consistently changing fiscal policies to better their respective economies. By adhering to fiscal policies and making necessary adjustments, Coca-Cola has experienced a consistent increase in profit and economic growth and is expected to continue to do so. References Banxico (n.d.). Banco De Mexico. Retrieved September 30, 2022, from https://www.banxico.org.mx/indexen.html CocaCola Revenue 2010-2022 | KO. (n.d.). MacroTrends. Retrieved September 30, 2022, from https://www.macrotrends.net/stocks/charts/KO/cocacola/revenue Cowen, T., & Tabarrok, A. (2020). Loose-leaf Version for Modern Principles of Economics (Fifth ed.). Worth Publishers. The Fed - What is the purpose of the Federal Reserve System? (n.d.). Board of Governors of the Federal Reserve System. Retrieved September 30, 2022, from https://www.federalreserve.gov/faqs/about_12594.htm Mexico Budget GDP Assumptions Optimistic, Revenue Forecasts More Prudent. (2022, February 16). FITCH WIRE. Retrieved September 30, 2022, from https://www.fitchratings.com/research/sovereigns/mexico-budget-gdp-assumptions-optimistic-revenue-forecasts-more-prudent-16-09-2022

Milestone 1 Sarah Brown Department of Business and Leadership, Regent University Dr. Jeff Bajah ECON 230 Macroeconomics September 2, 2022 Introduction Established over 130 years ago, Coca-Cola is a widely successful company known for its iconic soft drink: Coca-Cola or Coke. The company’s vision statement is as follows “Our vision is to craft the brands and choice of drinks that people love, to refresh them in body & spirit. And done in ways that create a more sustainable business and better-shared future that makes a difference in people’s lives, communities, and our planet.” Due to its lengthy history and apparent successes, Coca-Cola is a prime candidate for analyzing and discussing several macroeconomic principles. Coca-Cola’s Comparative Advantage A company has a comparative advantage when it can continually produce goods at the lowest opportunity cost compared to other producers and their rivals (Cowen & Tabarrok, 2020). Operating as the largest soft beverage company, Coca-Cola’s biggest rival company is PepsiCo (Hughes, 2022). Comparing these two companies shows that the comparative advantage lies with Coca-Cola. In 2021 Coca-Cola’s annual cost of goods sold was $15.357 Billion, a 14% increase from the previous year (CocaCola Financial Statements 2009–2022). In the same year, PepsiCo had an annual cost of goods sold of $37.075 Billion, a 16% increase from the previous year and well over twice as much as Coca-Cola’s (PepsiCo Cost of Goods Sold 2010–2022). Additionally, Coca-Cola procured an annual net income of $9.771 billion, an astounding 26.13% increase from 2020. In 2021, PepsiCo gained an annual net income of $7.618B, a 6.99% increase from 2020. Coca-Cola has continually produced goods at a lower opportunity cost and gained a higher net income than its most significant rival, PepsiCo, maintaining a comparative advantage in the soft drink market. Supply and Demand of Key Products The law of supply and demand governs the relationship between the amount of goods and services available for people to buy and the amount of goods and services purchased (Cowen & Tabarrok, 2020). According to the official Coca-Cola website, the company's main products are its beverage concentrates, syrups, and finished beverages distributed through the world's most extensive beverage distribution system. Explaining the company's products and services, the website says, "We make our branded beverage products available to consumers in more than 200 countries and territories through our network of independent bottling partners as well as consolidated bottling and distribution operations who manufacture, package, merchandise, and distribute the finished branded beverages to our customers and vending partners" (Coca-Cola System). Like any good or service, there are several contributors to changes in the demand for Coca-Cola's products. Some of these contributors include the product's price, perceived value, accessibility, marketing, changes in taste/fashion, and consumer income (Cowen & Tabarrok, 2020). For a classic product such as Coca-Cola, it is unlikely that there will be a sudden change in certain things, such as perceived value or taste, that would inflict damage to the demand for the product. Coca-Cola has spent over 130 years establishing its brand, gaining consumer confidence, and building perceived value. However, other contributing factors, such as product price, accessibility, and consumer income, could easily affect product demand. For instance, if a potential customer wishes to purchase a coke but has difficulty finding it in a store and can easily access competing products, Pepsi, for instance, may choose convenience and purchase from the competing brand. Additionally, if both Coke and Pepsi are easily accessible, yet Pepsi is significantly cheaper, the customer is confronted with a dilemma of choosing between brand loyalty or saving money. It is impossible to know which the customer will choose, but the cheaper option is frequently more favorable to the consumer. Despite gradual price increases and other economic factors, demand for Coca-Cola products continues to increase. The company has matched its demand, maintaining a steady increase in net revenue while minimizing the increase in the cost of production. Examination of GDP of Home Country and Key Market Gross Domestic Product, GDP, is defined as “The market value of all finished goods and services produced within a country in a year.” Furthermore, GDP per capita is the Gross Domestic Product value divided by population(chap 26). Coca-Cola is an American corporation founded in Atlanta, Georgia, in 1886 (Coca-Cola History). The GDP of Coca-Cola’s home country, the United States of America, was approximately 23 trillion US dollars for the year 2021, according to recent research (GDP (Current US$) - United States Data). Mexico leads by a significant margin in the race for most Coca-Cola products consumed, with an average daily consumption nearly five times higher than the national average (Davies, 2020). Mexico maintained a GDP of $1.29 trillion for the year 2021. Even though it maintains a much lesser GDP than Coca-Cola’s home country, Mexico proves to be a key market for the American corporation. Economic Fluctuations and Company Profitability Like any other company, Coca-Cola is subjected to the economy's fluctuations regardless of whether they produce positive or adverse effects. When there is economic growth, there is an increase in wealth and a general increase in societal well-being. Studies show that wealthier nations typically enjoy exclusive benefits such as "higher infant survival rates, life expectancy, and nutrition, more educational opportunities, leisure, and entertainment, fewer conflicts such as civil wars and riots, and overall more material goods" (Cowen & Tabarrok, 2020). When there is a general increase in wealth, more money is circulated, and more purchases are made. If Coca-Cola maintains healthy business operations such as competitive marketing and pricing, it will likely see a positive adjustment to its profitability. Patents allow innovators to protect their innovations for a designated period, typically 20 years. When a company acquires a patent, they gain monopoly power (Cowen & Tabarrok, 2020). The original Coca-Cola recipe was registered for a patent in 1893, and the company currently holds nearly 7000 patents across its numerous products (Coca-Cola). Acquiring patents could potentially positively affect the company's profitability as it gives the company a level of exclusivity. If they are the only company offering a specific patented product, they will likely produce a higher profit. Conclusion Since its founding, Coca-Cola has grown into an incredibly successful and well-known company. Their iconic products have gained them a loyal consumer base. Due to its success and sheer size, many economic theories such as GDP and Supply and Demand can be studied through the company’s materials. As the company continues to expand and improve, it will simultaneously continue to reflect established economic theories. References CocaCola Financial Statements 2009–2022 | KO. (n.d.). MacroTrends. Retrieved September 2, 2022, from https://www.macrotrends.net/stocks/charts/KO/cocacola/financial-statements Coca-Cola History. (n.d.). The Coca-Cola Company. Retrieved September 2, 2022, from https://www.coca- colacompany.com/company/history Coca-Cola System. (n.d.). The Coca-Cola Company. Retrieved September 2, 2022, from https://investors.coca-colacompany.com/about/coca-cola-system Cowen, T., & Tabarrok, A. (2020). Loose-leaf Version for Modern Principles of Economics (Fifth ed.). Worth Publishers. Davies, P. (2020, August 20). With average daily consumption of 2.2 liters of Coca-Cola, Chiapas leads the world. Mexico News Daily. https://mexiconewsdaily.com/news/with-average-daily-consumption-of-2- 2-liters-of-coca-cola-chiapas-leads-the-world/ GDP (current US$) - United States | Data. (n.d.). The World Bank. Retrieved September 2, 2022, fromhttps://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US Hughes, J. (2022, July 11). Coca Cola Competitors Analysis : Are They Still Leading? Business Chronicler. Retrieved September 2, 2022, from https://businesschronicler.com/competitors/coca-cola- competitors-analysis/ PepsiCo Cost of Goods Sold 2010–2022 | PEP. (n.d.). MacroTrends. Retrieved September 2, 2022, from https://www.macrotrends.net/stocks/charts/PEP/pepsico/cost-goods-sold