1. Consider the demand and supply for used science textbooks. Suppose that the used-textbook market is competitive, with supply given by P = 10 + .1Q and demand given by P = 100 – .08Q. Solve for the competitive market equilibrium price and quantity of used textbooks in this market. Determine the quantity of shortage or surplus that would occur if a price ceiling (maximum allowable price) of $35 were imposed on this market.
Describe why the market fails to be efficient in the context of this ceiling and what market participants commonly do to overcome the inefficiency caused by official prices below the equilibrium market price. If the intention is to help low-income students, compare the effects of the price ceiling to an alternative scheme of giving $25 purchase vouchers to lowincome students. In your answer, consider the effect of the vouchers on the demand for textbooks.