Saturday, February 19, 2011

Used Textbook Market

Markets are not perfect. Yet, most of the classes that I teach focus in some respect to the benefits and importance of using markets in answering economic questions. One of the questions that I do not really focus on is the benefit of markets in solving problems. What I mean by that is that if there are problems within a market, one can try to solve the problem by controlling or regulating the market to get the desired outcome. Many times, agents within that market spend a great deal of resources trying to find holes in the regulation or control. Another solution is to create another market that solves the original market problem. Here is an example.

At most college's and universities, student sell back some (all) of the textbooks they used at the end of the semester. From the student's perspective, the amount of money they receive is much less than they feel is appropriate for selling their textbook back. So some students here at the University of Iowa (along with other universities around the country) have created websites that put college student buyers and sellers together so that they can negotiate a more reasonable used textbook price. This is exactly what economist expect to happen when agents within the market see an opportunity for gains to be made on both sides of the transaction.

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