Question

What is the effect on the equilibrium price and equilibrium quantity of magazinesmagazines if the price of a newspapera newspaper decreasesdecreases and the wage rate paid to magazine production workersmagazine production workers decreasesdecreases​? The equilibrium price of a magazinea magazine ​______ and the equilibrium quantity​ ______.

Answer 1

Answer:  The equilibrium price of a magazine decreases and equilibrium quantity remains the same.

Explanation:

The magazine and newspaper are substitute goods. So, if the price of a newspaper decreases as a result the demand for magazine decreases.

This shifts the demand curve of magazine leftwards from DD to D'D' in the diagram.

And, if the wage rate paid to the magazine production workers decreases as a result the cost of magazine production decreases.

This will increase the supply of magazine and shift the supply curve towards right from SS to S'S' in the diagram.

Hence, the equilibrium price of a magazine decreases from P to P' and equilibrium quantity remains the same at Q0 = Q1.