The market in used textbooks is a big business in terms of dollars and cents—several billion dollars each year. More importantly for us, it is a convenient starting point for developing the concepts of consumer and producer surplus. We’ll use the concepts of consumer and producer surplus to understand exactly how buyers and sellers benefit from a competitive market and how big those benefits are. In addition, these concepts play important roles in analyzing what happens when competitive markets don’t work well or there is interference in the market.

So let’s begin by looking at the market for used textbooks, starting with the buyers. The key point, as we’ll see in a minute, is that the demand curve is derived from their tastes or preferences—and that those same preferences also determine how much they gain from the opportunity to buy used books.