Question

1. Using supply-and-demand diagrams, show the effect of the following events on the market of printed textbooks.

a. A continuous decrease in forests

b. The price of electronic textbooks falls.

c. Colleges require all students to buy printed textbooks

d. New machines to produce printed textbook are invented

Answer 1

Part a :

As forests keep on decreasing, wood used for making paper, which is a factor of production of printed textbooks, keeps on decreasing. As wood gets lesser, the price of paper will certainly rise as now wood will have become expensive. As the price if wood rises, so does the price of paper and hence, the cost of production of printed textbooks rise as well. As the cost of profuction rises, producers can produce lesser at given prices, because profit margin falls. Hence, the supply curve shifts to its left. This means that at the given prices less and less quantity is supplied. As a result, the equilibrium price rises and the equilibrium quantity falls.

Part b :

Printed textbooks and electronic textbooks are considered substitute goods, as in consumers can shift their demand from one to another. As price of electronic books falls, the printed textbooks become relatively expensive. Therefore, consumers shift to the cheaper electronic books now and as a result, the demand for printed textbooks fall. As a result, the demand curve shifts to the left and the equilibrium price falls and equilibrium quantity falls as well.

Part c :

As College makes it necessary for students to buy printed notebooks, many students who did not buy printed textbooks will also now have to buy. This means that at all given prices, demand will increase as consumers have increased. This will result in higher demand and the demand curve will shift to its right. As a result, equilibrium price rises and the equilibrium quantity will also rise.

Part d :

As new machines to produce textbooks are invented, the cost of producing printed textbooks will fall. As cost of production will fall, producers will be tempted to produce more at the give prices. As a result, the producers will produce more and this will shift the supply curve to the right. As a result, a new equilibrium will be formed and at this equilibrium, price will be lower and quantity will be higher.