You are an owner of a book store, and you meet with other neighborhood book stor

Question

You are an owner of a book store, and you meet with other neighborhood book store owners. Consider that books and library books are substitutes. In an attempt to increase sales, you collectively decide to lower prices by 10%. Which of the following are consequences of this price change? Choose one or more: A. The supply of books will decrease. B. The quantity supplied of books will decrease. C. The supply of books will increase. D. The demand for books will increase. E. Demand for library books will decrease. O F. The demand for books will not change.

Explanation / Answer

Options (B), (E) and (F).

When price of books falls, as per law of supply, quantity of books supplied will fall (causing a downward movement along supply curve), but supply will remain unchanged (so supply curve will not shift). Since library books are a substitute, demand for library books will fall. Finally, as per law of demand, quantity of books demanded will rise (causing a downward movement along demand curve), but demand will remain unchanged (so demand curve will not shift).

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