Each of the following events tends to change the demand or the supply of DVD movie rentals, and as a result, increases or decreases the price of a rental. In each case, indicate (i) whether supply or demand is affected; (ii) the determinant of supply or demand that is affected; and (iii) the change in equilibrium price and quantity that is predicted.
a.The federal government imposes a tax of {content}.25 on each DVD movie rental.
b.The average price of going to a movie in a theatre increases by .00.
c.A TV station that airs recent movies drops its extra charge of .00 per
month, and now includes this service with the regular cable TV package.
d.Reality television programs become so popular that a large proportion of those seeking entertainment are enticed to spend much more time watching these programs
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BasudebSensEconomics says
a.The federal government imposes a tax of $0.25 on each DVD movie rental.
Ans: This shifts the supply curve parallely to the left because the supply will now be related to the tax inclusuve prices meaning that if supply was x at a price p earlier, now the same supply will be forthcoming at the tax inclusive price of $ (p+ 0.25). The new intersection of the demand supply curve will now occur to the left and above the earlier equilibrium point. Thus the new equilibrium price will be higher and equlibrium quantity will be lower as compared with the earlier equilibrium. In this case, the marginal cost of supply is increased as the the seller as to charge the tax to the buyers for each unit sold @ $0.25.
b.The average price of going to a movie in a theatre increases by $2.00.
Ans: This will in the short-run shift the supply curve to the left as the suppliers are going to charge a higher price for the same level of supply of the movie tickets. Given a rise im price the moview goers will move upwards to the left along the demand curve (demand for movie tickets falls as the r as the price of going to movie has increased relative to the prices of other entertainment products/ services). The number of seats to see movies in the theatre remains the same, but as we go from lower priced seats to higher priced seats, the supply rises. With the higher average price, the supply schedule moves left. The new equilibrium would be at a higher price and lower movie seats sold in the theater.
c.A TV station that airs recent movies drops its extra charge of $20.00 per month, and now includes this service with the regular cable TV package.
Ans: This would mean that earlier demand abnd supply curves for new movies from TV will no more be relevant. These would be subsumed in the demand and supply of regular cable TV package. This would mean that the supply of cable TV package inclusive of airing new movies would be cheaper by $20. A flat supply curve of the new package is now below the earlier supply curve of the package plus the new movie transmission together. Demand schedule remains the same. New consumersare attracted by a new product available at lower price for the earler Cable TV product. Consumers move down the demand schdule and new equlibrium price for the product (TV new movies plus Cable TV will be lower and with new subscribers enticed by a better product with the same price, the demand (no. of subscribers to Cable TV) will be lower and the sales volume in terms of increased base of consumer, will be higher.
d.Reality television programs become so popular that a large proportion of those seeking entertainment are enticed to spend much more time watching these programs.
Ans: Consumers find a new product, their taste and prference change and thus we now have a new demand curve for Realty television programmes. The demand for Realty programsd may rise and this may increase the tarrif rates for advertisement during these programme because of the change in tastes and preference in favour of Realty shows on the part of the TV viewers. For the existing subscribers of cable TV, there is no change in terms of a new equilrium, but there will be growth of fresh subscribers will increase. Demand for substitue entertainment product like movies in theater may now fall. .