The price of textbooks has increased 82 percent during the l

The price of textbooks has increased 82 percent during the last decade. http://www.usnews.com/news/articles/2014/01/28/report-high-textbook-prices-have-college-students-struggling Do you think government should have strict control over the prices of textbooks? Explain your answers using economic terms.

Solution

The textbooks create a positive externality as textbooks bring education and it brings many good aspects to the society. It positively affects those people also who don’t buy the books. So, it is the case of positive externality. Here, the marginal social cost (MSC) is below the marginal social benefits (MSB). It will make to achive only market based equilibrium.

In this case, the government should make efforts to increase the sale of the textbooks to maximize the impact. For this purpose, the government should subsidize the books by offering subsidy to the publisher. It will reduce the price and increase the demand. As a result, the positive impact of the selling of the textbooks will be maximized.
After the subsidy is offered,
Marginal Social Cost = Marginal Social Benefits
It will help to achieve the socially optimal equilibrium. So, the government should make price control by offering subsidy.