Question

The following table summarizes information about the market for principles of economics textbooks:

Price	Quantity Demanded per Year	Quantity Supplied per Year
$45	4,300	300
55	2,300	700
65	1,300	1,300
75	800	2,100
85	650	3,100

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? Is there a shortage or surplus of textbooks in this market? If so, calculate the value of the surplus or shortage.
C. Suppose that the price of printing paper (the major input into textbook production) increases. What happens to the equilibrium price and quantity of textbooks? Use supply and demand diagram to graphically illustrate your answer.

Answer 1

a. Market equilibrium price is 65 $ and equilibrium quantity is 1300 units

b. With price limit of 55 $, the textbooks to be sold now is 700 units. This price floor will result in shortage of textbooks in the market. The units of shortage is 1600 units (Demanded 2300 – Supplied 700)

c. When the price of printing paper(raw material used in production of textbook) increases, then it shifts the supply curve to the left causing higher price level and decrease in quantity supplied in the market. The supply curve will shift from S to S1 (graph below)