Question

Use the supply and demand graph for printed textbooks below to answer the next two questions (For both questions, assume A is the starting equilibrium point): Price Dº Oly 6. If the price of paper (an input) decreases and the number of college students decreases 10%, then a possible new equilibrium is... a) H. b) F. c) B d) D. 7. The price of ebooks (a substitute) decreases resulting in a possible new equilibrium at... a) C b) G c) E d) I 8. IQ. - 1800 - 2P and Qs - 4P, what is the equilibrium price and quantity in this market? 9. Given the equations in #8 and using the midpoint method, what is the price elasticity of demand as price rises from 300 to 350?

Answer 1

6. The price of paper (an input) is decreasing so it is going to decrease the cost of printed books ie the supply price will decrease. And decrease in number of students will decrease the demand of books. So intersection of S3 and D2 is new equilibrium point. ie F

7. The price of ebooks (a substitute) decrease so it will decrease the demand for printed books and demand curve will shift downwards. So point G is new equilibrium point.

8. For equilibrium point solve both curves simultaneously,

1800-2p=4p

=> 6p = 1800

=> p = 300

and Q = 1200