How Does Price Elasticity Affect Supply?
The interplay of demand and supply is one of the critical elements in microeconomics. Demand influences the supply of communities and their pricing. Different commodities have varied levels of demand which impacts their pricing. A unit change in demand influences a unit change in supply and output in pricing. Pricing of commodities is also influenced by other factors such as the cost of investment and level of competition. Textbooks’ prices have developed much concern in economic theory. Nationally, textbook unit prices have increased three times the prices of other commodities and services within the economy.
The paper will analyze the supply and demand for college textbooks.
According to a report from ABC News, the prices of college textbooks have increased by three times compared to other commodities prices from 1977 to 2015. In 2016, it was postulated that an undergraduate student was spending $1,300 per year on textbooks and supplies. Low elasticities of demand and supply have led to this (Dean et al, 2019). The demand for college textbooks is very inelastic as students’ have little choice in purchasing of textbooks required for a given course.
The demand for college textbooks among students is as low as -.2, meaning that an increase in college textbooks price by 10% leads to a 2% decline in the number of textbooks purchased. Students are sensitive about prices, but they indicate that a decision to forgo a book adversely impacts their grades (V. Koch, 2010). Students have no choice other than buying the required course books to avoid poor grades.
The textbook publishing industry is far from being an ideal perfect competition model.
This industry has no pure monopolistic model rather an ideal perfect competition model. Unlike in most other markets, the textbook publishing industry is dominated a small number of large corporations that control the bulk of college textbooks in supply (V. Koch, 2010). Larger publishing companies have a significant level of market power, especially when determining their prices instead of utilizing the competitive market price. Publishing firms do not take competitive market prices on textbooks, but they set their own prices. Monopolistic kind of power tends to shun away new publishing firms into the industry through high prices (Dean et al, 2019). In a competitive market, profit maximization among firms determined through marginal costs and marginal revenues. In the college textbooks publishing industry, high inelasticity of demand gives publishers are room to set their prices high above their actual costs of production hence high-profit maximization.
Investment is one of the critical aspects that make firms to survive in a competitive market. College textbook is greatly dynamic and keeps on advancing in terms of edition. Publishers do not necessarily increase prices because they want to maximize profits, but they want to meet investment expenses while making profits. College textbooks have high cost of investment on new textbook editions in terms of software and tools to complement texts (Dean et al, 2019). Publishers constantly publish new editions that obtain instructors’ recommendations hence being recommended for academic purposes. High investments in editions technologies have greatly impacted college textbooks’ pricing.
In conclusion, the inelasticity of demand for college textbooks, monopolistic market structure, and investment of editions has constantly led to high pricing of college textbooks. Students are sensitive to textbooks prices, but they cannot escape the purchase of course textbooks because failure to purchase adversely affects their grades. The government should come in and control publishing industries’ investments on editions to avert our students from being subjected to unauthentic academic content.
- Dean, E., Elardo, J., Green, M., Wilson, B., & Berger, S. (2019). 16.4 The High Price of College Textbooks. Retrieved 16 October 2019, from https://openoregon.pressbooks.pub/socialprovisioning/chapter/y-4-the-high-price-of-college-textbooks/V. Koch, J. (2010). An Economic Analysis of Textbook Pricing and Textbook Markets. Retrieved 16 October 2019, from https://files.eric.ed.gov/fulltext/ED497025.pdf