Question

Imagine that the following two things occur at the same time in the market for economics textbooks:

Event 1: Economics professors decide to no longer require textbooks.

Event 2: Printing cost for textbooks are lowered.

After the events, you learn that equilibrium price of textbooks decreased and the equilibrium quantity of textbooks decreased. What must be true?

		The change caused by Event 1 was larger than the change caused by Event 2
		The change caused by Event 2 was larger than the change caused by Event 1
		That outcome is not possible given the two events described

Answer 1

Let us consider the effects of both the Events on market for textbooks:

• Event 1: Economics professors decide to no longer require textbooks. This is a reduction is demand for textbooks. The students will no more have to buy textbooks and demand for them will reduce. Graphically, this will shift Demand curve to the left.

• Event 2: Printing costs for textbooks are lowered. This is like a reduction in prices of raw material in good's production. Thus, this reduces cost of production and supply curve shifts to the right.

After the events, the equilibrium prices and quantities are lower. This means that "the change caused by Event 1 was larger than the change caused by Event 2". Event 1 i.e. reduced demand should have reduced the price and quantity and Event 2 should have reduced the prices but raised the quantity. However, the equilibrium quantity was lower. It implies that event 1 had a greater effect.

See image.

Thanks!