Question

19.

Construct a graph showing equilibrium in the market for movie tickets. Label both axes and denote the initial equilibrium price and quantity as P0 and Q0. For each of the following events, draw an appropriate new supply or demand curve for movies, and predict the impact of the event on the market price of a movie ticket and the number of tickets sold in the new equilibrium situation:

a. Movie theatres double the price of soft drinks and popcorn.

b. A national video rental chain cuts its rental rate by 25%.

c. Cable television begins offering pay-per-view movies.

d. The Screen Writers’ Guild ends a 10-month strike.

e. Kodak reduces the price it charges Hollywood producers for motion picture films.

Answer 1

In following graph, D0 & S0 are initial demand & supply curves intersecting at point A with initial price P0 and quantity Q0.

(a) Soft drinks and popcorn are complements to movies, so higher price of complement goods will decrease the demand for movie tickets, shifting demand curve leftward and decreasing both price and quantity. In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(b) Video channels are substitutes to movies, so lower price of substitute goods will decrease the demand for movie tickets, shifting demand curve leftward and decreasing both price and quantity. In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(c) Cable TV movies are substitutes to movies at theater, so availability of substitute goods will decrease the demand for movie tickets, shifting demand curve leftward and decreasing both price and quantity. In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(d) End of the strike will increase the supply of movies, shifting supply curve rightward, decreasing ticket price and increasing quantity. In following graph, S0 shifts right to S1, intersecting D0 at point B with lower price P1 and higher quantity Q1.

(e) Lower price charged by Kodak will lower the cost of inputs to movie production, which will increase the supply of movies, shifting supply curve rightward, decreasing ticket price and increasing quantity. In following graph, S0 shifts right to S1, intersecting D0 at point B with lower price P1 and higher quantity Q1.