In a free market economy, a permanent shift in consumer preference occurs from print newspapers to digital news platforms. Under the automatic operation of the price mechanism, how are productive resources reallocated between these two industries?
- Declining prices and profits in print journalism signal capital and labor to migrate toward the more profitable digital news sector.Answer
- BA central planning board issues directives instructing print publishing firms to transfer their equipment and workforce to digital media organizations.
- CThe state provides production subsidies to print publishers to maintain employment equality across both sectors.
- DResources remain permanently locked in print journalism because the high initial monetary cost of printing machinery cannot be recovered.
Answer
Declining prices and profits in print journalism signal capital and labor to migrate toward the more profitable digital news sector.
In a pure free market economy (capitalism), resource allocation is directed by the price mechanism driven by consumer sovereignty and the profit motive. When consumer preferences shift from print to digital news, falling demand for print newspapers drives down prices and profitability in print publishing. Conversely, strong demand for digital news pushes up revenue potential in digital media. These relative price and profit changes act as signals to self-interested producers to cut back on print publishing and redirect capital, labor, and entrepreneurship toward the expanding digital news sector.
Step-by-Step Solution
Key Concept
Price Mechanism and Resource Allocation in Free Market Capitalism