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GULF UNIVERSITY FOR SCIENCE AND TECHNOLOGY EC 503, CASE STUDY 1 Instructor: Dr. Asive Aydilek About demand and supply In 2006, the average price for a daily edition of Baltimore newspaper was $0.5. In 2007, the average price had risen to $0.75. Three different analysts gave three different explanations for the higher equilibrium price. Analyst 1: The higher price for Baltimore newspapers is good news because it means the population is better informed about public issues. These data clearly show that the citizens of Baltimore have a new and increased regard for newspapers. Analyst 2: The higher price for Baltimore newspapers is bad news for the citizens of Baltimore. The higher cost of paper, ink and distribution reflected in these higher prices will further diminish the population's awareness of public issues. Analyst 3: The higher price for Baltimore newspapers is an unfortunate result of newspapers trying to make money as many consumers has turned to the Internet to access news coverage for free. As economists, answer the following questions: a) Do the above 3 explanations make sense based on what we know about economic principles? If they do make sense, can you figure out which explanation applies to the case of rising newspaper prices in Baltimore? b) Among the explanation which make sense, who is right if quantities of newspapers bought have been falling c) Is it possible that two of the analysts are correct? Explain with an example. Note: use demand and supply curves to demonstrate and explain your answers