Question

You are an owner of a bakery, and you meet with other neighborhood bakery owners. In an attempt to increase sales, you collectively decide to lower prices by 10%. Which of the following are consequences of this price change?

A. The supply of fresh baked goods will decrease.
B. The quantity supplied of fresh baked goods will decrease.
C. Demand for processed baked goods will decrease.
D. The supply of fresh baked goods will increase.
E. The demand for fresh baked goods will not change.
F. The demand for fresh baked goods will increase.

Answer 1

The quantity supplied of fresh baked goods will decrease ( B )

Demand for processed baked goods will decrease. ( C )

The demand for fresh baked goods will not change ( E )

Step-by-step explanation:

When the neighbourhood bakery owners agree to lower prices of goods by 10% it will not have any effect on the demand for fresh baked goods hence the demand for fresh baked goods will not change because the demand for fresh baked goods have an in-elastic curve

Also since there is s drop in price the quantity supplied by the suppliers will decrease. while The demand for processed baked goods will decrease because of the substitute it has in fresh baked goods that just got its price slashed by 10%