Answer to Question #315268 in Microeconomics for yade

Question

1.   Assume books and newspapers are substitutes. Paper is used to make books. What will happen in the book market if the price of newspapers increases and at the same time the price of paper goes down?

Graphically and in words show what will happen to the market clearing price (P*), market clearing quantity (Q*). Be sure to label your axes correctly and make it clear which way you are shifting your graphs. Assume ceteris paribus

Answer 1

Question 1

The quantity books demanded will increase. The supply of books will increase as a result of the fall in price of the paper.

Question 2 

The graphical representation of the market change in quantity and the price of the books with respect to the supply and demand of books is as shown below.