Question

1. Consider the market for textbooks. Plot the demand and supply curves for textbooks. Make sure to show the equilibrium price and equilibrium quantity produced in this market. What happens to the demand curve for textbooks when the Fall quarter begins across universities in the USA? What happens to the equilibrium price and equilibrium quantity produced of the textbooks?
2. What is unit inelasticity of demand?
3. OPEC (organization of petroleum exporting countries) is a group of countries that generates 45% of the world’s total crude oil production. Hence, OPEC has significant influence on the amount of oil produced each year. Countries in the OPEC sometimes do not agree with the prevailing price of oil in the global market. In such cases, they respond by cutting their production. (Example: Saudi Arabia stops pumping oil out of some wells.) What happens to the supply curve for oil in such situations? What happens to the price of oil?
4. Again, consider a simple economy with two producers and two goods. Is it possible for the TOT to be lower than the opportunity cost of one of the producers or higher than the opportunity cost for the other producer? Why or why not?

Answer 1

a) Let DD be the demand curve for text books. SS is the supply curve of text books. Initial equilibrium is determined by the intersection DD and SS at E. Initial equilibrium price is P and equlibrium quantity is Q.

Now there is a fall in demand for text books. It's reflected in the form of a leftward shift in demand from DD to D1D1. New equlibrium is determined by the intersection of D1D1 and SS. At the new equlibrium, equlibrium price of text books falls from P to P1 and equlibrium quantity of text books falls from Q to Q1.

ln short, a fall in demand for text books will shift the demand curve to left and result would be a reduction in both equlibrium quantity and equlibrium price.