Question

The following table summarizes information about the market for principles of economics textbooks: $$ \begin{array}{|rrr|} \hline \text { Price } & \begin{array}{c} \text { Quantity Demanded } \\ \text { per Year } \end{array} & \begin{array}{c} \text { Quantity Supplied } \\ \text { per Year } \end{array} \\ \hline \$ 45 & 4,300 & 300 \\ \hline 55 & 2,300 & 700 \\ \hline 65 & 1,300 & 1,300 \\ \hline 75 & 800 & 2,100 \\ \hline 85 & 650 & 3,100 \\ \hline \end{array} $$ a. What is the market equilibrium price and quantity of textbooks? b. To quell outrage over tuition increases, the college places a \(\$ 55\) limit on the price of textbooks. How many textbooks will be sold now? c. While the price limit is still in effect, automated publishing increases the efficiency of textbook production. Show graphically the likely effect of this innovation on the market price and quantity.

Short answer

Answer: The market equilibrium price is $65, and the equilibrium quantity is 1,300 textbooks. Under a $55 price limit, 700 textbooks will be sold.

Step-by-step solution

a. Finding the market equilibrium

To find the market equilibrium price and quantity of textbooks, we need to determine the price level where the quantity demanded equals the quantity supplied. Look through the table and find the price point where this condition is met: At a price of \(65, the quantity demanded is 1,300 textbooks, and the quantity supplied is also 1,300 textbooks. Therefore, the market equilibrium price is \)65, and the equilibrium quantity is 1,300 textbooks.

b. Quantity of textbooks sold with a $55 price limit

Now that the college has placed a $55 price limit on textbooks, we need to find the new quantity that will be sold at this price level. From the table, we can observe the following: At $55, the quantity demanded is 2,300 textbooks, and the quantity supplied is 700 textbooks. Since suppliers will only provide 700 textbooks at this price, only 700 textbooks will be sold.

c. Effect of automated publishing on the market under a price limit

As automated publishing increases the efficiency of textbook production, it will likely increase the quantity supplied of textbooks at any given price, as suppliers are now able to produce more textbooks at lower costs. In graphical terms, this would result in a rightward shift of the supply curve. However, since the price limit remains at \(55, we cannot directly observe the effect of increased efficiency on the market price. At the price limit of \)55, the quantity demanded is likely to remain constant, as it is determined by the consumers' willingness to pay for textbooks. On the other hand, the quantity supplied would increase due to the increased efficiency in the production process. This will result in a larger surplus of textbooks in the market.

Key concepts

Quantity Demanded

Quantity demanded refers to the amount of a product consumers are willing and able to purchase at a given price. It is a core component in understanding market dynamics. Several factors can influence the quantity demanded including the price of the product, consumer preferences, and income levels.
In the original exercise, when the price of textbooks is $55, the quantity demanded is 2,300 textbooks per year. This means that at this price point, 2,300 textbooks are what consumers are willing to buy. Generally, we observe that as prices decrease, the quantity demanded tends to increase, illustrating the inverse relationship between price and quantity demanded. This relationship is a fundamental concept in economics, often depicted as a downward-sloping demand curve.

Quantity Supplied

Quantity supplied refers to the amount of a good that producers are willing to sell at a given price. It is influenced by several factors such as production costs, technology, and the price of related goods.
For instance, in the textbook exercise, at a price of $55, the quantity supplied is only 700 textbooks per year. This indicates the maximum amount producers are willing to provide at the specified price, which showcases a direct relationship with price: as prices increase, so does the quantity supplied. This positive relationship between price and quantity supplied creates an upward-sloping supply curve.
Understanding quantity supplied is crucial for analyzing market behaviors and identifying potential surpluses or shortages within a market.

Price Control

Price control refers to government-imposed limits on how high or low a market price may go, often intending to protect consumers or producers. There are two main types of price controls: price ceilings and price floors.
In the exercise, a price ceiling of $55 is set for textbooks, meaning prices cannot rise above this limit. At the ceiling price of $55, 2,300 textbooks are demanded, but only 700 are supplied, leading to a shortage of 1,600 textbooks. Such a shortage indicates the negative effects of a price ceiling, where the quantity demanded exceeds the quantity supplied, often causing imbalances in the market. Price controls can lead to inefficiencies and unintended consequences, making them an essential topic in market equilibrium studies.

Supply and Demand Curve

The supply and demand curve is a fundamental concept in economics, illustrating the relationship between the price of a good and the quantity supplied or demanded.
Supply and demand curves are plotted on a graph with the price on the vertical axis and quantity on the horizontal axis. The demand curve typically slopes downwards because, as prices fall, consumers tend to purchase more. Conversely, the supply curve slopes upwards, reflecting that higher prices incentivize producers to supply more.
The intersection of these two curves indicates the market equilibrium, where quantity demanded equals quantity supplied, ensuring market balance. Any shift in these curves, such as increased efficiency due to automated publishing, affects the equilibrium, causing shifts in quantity and potentially leading to surplus or shortage depending on the scenario.