Question

The average price for a daily edition of a newspaper was $0.50 in 2019. The average price had increased to $0.75 in 2020. Three different analysts have three different explanations for the higher equilibrium price.

Analyst 1: The higher price of newspapers is good news because it means the population is better informed about public issues. These data clearly show that the citizens have a new, increased regard for newspapers (increase demand).

Analyst 2: The higher price of newspapers is bad news for the citizens. The higher cost of paper, ink, and distribution reflected in these higher prices will further diminish the population's awareness of public issues (decrease supply).

As economists and based on what we know about economic principles, can we figure out which explanation applies to the case of rising newspaper prices? (Explain your answer graphically)

Answer it as soon as possible

Answer 1

Answer -

Analyst 2.

Based on statement above we draw the conclusion that analyst one blame the increase of newspaper's price to the knowledge improvement of citizen about newspaper. it means the citizen need newspaper more than before. The increase of these needs makes the slope of demand change to the right.

The result of this change is to increase the quantity requested, to increase the quantity requested and to increase the price. Because of this case, there would be a shortage of newspaper supplies in the short term.

Here we are illstrating this conclusion with diagram which is given below -

Analyst 2.

Based on the second argument, we infer that analyst 2 'blames' the rise in the price of the newspaper on an increased cost of newspaper printing, which implies a rise in the cost of output of newspapers. The rise in this need would change the supply curve to the left.

The result of the shifting is the reduction in the amount requested and the price rise, because of this occurrence there will be an excess supply because the demand will reduction in the short-run.

Graphical illustration of second analyst is given below -