How to Analyze News Headlines Impact on Product Markets

How can we use market graphs to illustrate the impact of news headlines on product markets?

What are the key steps involved in creating and analyzing market graphs based on news events?

Final Answer:

To understand how a news event affects a product market, we graph the market showing supply and demand, determine which curve shifts, label the new equilibrium, and explain the changes using TRIBE or ROTTEN factors.

Explanation:

To analyze how a news event affects a product market, we follow a four-step process involving the creation of supply and demand graphs. Initially, we draw the baseline market graph to establish where the curves for supply and demand intersect. This intersection reveals the equilibrium price (Pe) and equilibrium quantity (Qe). We title the graph with the affected product, such as "Market for Orange Juice."

In the second step, we determine whether the curve that shifted is the supply curve or the demand curve, or if both are affected. The direction of the shift (to the right for an increase, to the left for a decrease) depends on whether the event increases or decreases the quantity that consumers wish to buy, or the quantity that the producers want to sell.

Afterwards, we draw the new curve to demonstrate the shift, labeled as either D1 or S1. A new intersection point shows the shifted equilibrium, with the new equilibrium price (P1) and equilibrium quantity (Q1). We add arrows to indicate the direction of the shift and the effects on price and quantity.

The final step involves writing a paragraph for each graph explaining the outcome. We discuss the change and the reasons behind it, mentioning an element from TRIBE (Tastes, Related goods, Income, Buyers, and Expectations) or ROTTEN (Resource costs, Other goods' prices, Technology, Taxes, Expectations, and Number of sellers) that best explains the shift and its impact on the market's equilibrium price and quantity.