Question

By Using Graphs of Supply and Demand, show what will happen to the price and sales in the movie theater prices if the following occur: (1) an increase in the price of DVD rentals, (2) Increase in the price of parking at the movie theater and (3) Increase in theater worker's wages. Explain what will happen to the shifts and/or movements in each case and then determine what happens to the sales and price of movie theater prices.

Answer 1

Ans.

a) An increase in price of DVD rentals, which may be considered as the substitute to movie theatres, will lead to increase in demand for movie theatres at given price which shifts the demand curve for movie theatre rightwards. So, this creates a shortage of movie theatres leading to increase in its price and equilibrium sales.

b) Parking a the movie theatres is complementary to movie theatres. So, increase in price of parking decreases the demand for movie theatre demand which shifts the demand curve leftwards. This creates the surplus of movie theatres at goven price. So, equilibrium price and equilibrium sales of movie theatres decreases.

c) Increase in wages of workers at theatres increases the costs at movie theatres leading to decrease in profits at given price. This leads to a decrease in supply of movie theatres at given price, shifting the supply curve leftwards and creating a shortage. So, equilibrium price level increases but equilibrium sales decreases.