Analyzing Equilibrium Price and Quantity

If you set a price of $17 per book, how many buyers would want to buy a book?

4

At a price of $17, how many sellers would want to sell a book?

7, because seven sellers have a seller cost lower than $17 and are therefore willing to sell.

If you set a price of $17 per book for the trades among your friends:

There will be a surplus of books

For these buyer values and seller costs, the supply and demand model predicts that the price will be:

$14

Suppose that people who are indifferent about trading do, in fact, go ahead and trade. Under this convention, what is the prediction from the supply and demand model about the number of books that should change hands at the equilibrium price?

6

Suppose now that the professor teaching the course announces that a large part of the class grade will depend on problem sets from the textbook. This makes owning a copy of the textbook more valuable to each of the potential buyers. The buyer value (or willingness to pay) increases for each student planning to take the course.
If you set a price of $18 per book, how many buyers now want to buy a book? (Follow the usual convention that if people are indifferent, they go ahead and trade.)

8

With these new buyer values, if you set a price of $18 per book:

The market will clear

For these buyer values and seller costs, the supply and demand model predicts that the price will be:

$18

Suppose that people who are indifferent about trading do, in fact, go ahead and trade. Under this convention, what is the prediction from the supply and demand model about the number of books that should change hands?

8

Note from the table that when the professor announced that the textbook would be required, the buyer value for each of the buyers increased by $8. According to the model of supply and demand, which statement best describes what happened to the equilibrium price and the reason why?

The price goes up by $4 because this reduces the quantity of books that buyers want to buy from 10 at $14 to 8 at $18 and increases the quantity of books that sellers want to sell from 6 at $14 to 8 at $18.