Assume that the demand for Internet advertising is declining at the same time that the number of Internet sites accepting advertising is increasing. From this information, a student argues that that the price of Internet ads should fall, but it is not known whether the total quantity of Internet ads will increase or decrease.
a. Assume the equilibrium price of Internet advertisements is initially P1 and the equilibrium quantity is Q1, draw and properly label a graph that reflects this situation.
b. Draw and properly label a new supply curve for Internet advertisements (S2) and a new demand curve for advertisements (D2).
c. Explain your graphs as they relate to the student’s analysis. Is the student correct? Why or why not?