The demand for a textbook written by Schwarz and Mobley is Q = 20,000?50P; supply is Q = 2,000 + 100P. Students complain about the high price of textbooks, so a price ceiling is imposed, which unfortunately leads to a shortage of texts. Below what price will shortages occur?
What will be an ideal response?
A shortage will occur if the price ceiling is below the equilibrium price. Equilibrium price is where quantity demanded equals quantity supplied. At this point,
20,000?50P = 2,000 + 100P
Solving, P = 120. If price is mandated below $120, there will be a shortage.
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