The Newspaper Association of America announced last week that the average paid circulation at major U.S. newspapers continues to fall. (The Pioneer Press is an exception, with a tiny increase on Sundays offsetting a tiny decrease during the week.)
This trend might not bode well for columnists, but for econ teachers it is a good example of “demand shifters.”
Demand is a relationship between price and quantity that shows how many units of something people are willing to buy at each possible price, all other things being equal. A demand shifter is a change in one of these “all other things” that alters how much people are willing to buy at each possible price.
One important shifter is change in tastes and preferences. For example, per-capita pasta consumption is 10 times what it was in my childhood. But purchases of bell-bottom jeans have plummeted.
Declining newspaper readership might represent a similar change in preferences. People can do other things with their time than read newspapers. They can get news and information from many sources. Declining newspaper readership might be somewhat akin to the fading popularity of leisure suits 30 years ago.
Another common demand shifter is the price of related goods. When ground beef goes up in price, sales of chicken increase even if its price does not fall — simply because chicken is now relatively cheaper than beef.
The information technology revolution is making other news sources cheaper. The Internet, personal computers and hand-held devices like Blackberries allow people to track what is going on in the world without holding newspapers in their hands. The real price of such devices continues to fall as their capabilities rise. So, some people are buying fewer newspapers because alternatives are becoming cheaper and better.
The IT revolution and declining prices of devices have more than offset another factor that might have increased sales of newspapers. The population of the United States grew from 200 million to 300 million in about 40 years, but that did not lead to increases in newspaper readership.
Explaining a possible fourth factor might hurt some journalists’ feelings. As their incomes rise, people buy increased quantities of most goods and services, prompting economists to categorize them as “normal goods.”
Even so, people buy less of some goods as their incomes rise. Inter-city bus travel and packaged macaroni and cheese are common examples. Economists call these “inferior goods” but not because of any inherent product defects. Rather, these goods and services are considered inferior because people with extra income might select what they consider to be superior alternatives — a car and fresh pasta, for example, instead of a bus pass and a box of mac and cheese.
Still, it is a little humbling to realize that some people might leave behind a product, on which someone spends hours of labor, as their incomes increase.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.