Question

5. 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

a. As the price of the popcorn and drinks increases people would visit less to the theatres as watching movie would become expensive. The demand curve would shift inwards to the left. The equilibrium price and quantity both will decrease.

b. When the rental rate decreases people would prefer watching movies at their home comfort and hence the demand curve would shift inwards to the left.

c. This will induce the consumers to watch movies at their home comfort and the demand for movies will decrease. The demand curve will shift to the left.

d. This will increase the supply of movies in the movie theatres. the supply curve will shift to the right. the price will decrease and the quantity supplied will increase.

e. This will decrease the cost of production of movies and hence more movies will be produced shifting the supply curve to the right.