Question

Consider a market for online movie rentals. The market supply curve slopes upward, the market demand curve slopes downward, and the equilibrium rental price equals $\$3.50$. Consider each of the following events, and discuss the effects they will have on the market clearing price and on the demand curve faced by the individual online rental firm.

a. Peoples tastes change in favor of going to see more movies at cinemas with their friends and Family members.

b. More online movie-rental firms enter the market.

c. There is a significant increase in the price to consumers of Purchasing movies online.

Short answer

a. Leftward shift within the demand curve causes reduction within the price.

b. The demand curve will shift to leftward and consequently price are decreased.

c. The demand curve will shift to the proper and therefore the price will tend to rise.

Step-by-step solution

Introduction

Online movie refers to a service, where a personal can access featured movies online using internet protocol. Rising demand for online movies is especially attributed to the increased adoption of smartphones, augmented broadband services, hectic lifecycles, simple access towards comprehensive movie collection, convenience of watching movies at anyplace or time et al. such notable factors.

Given Information (a)

(a) The market supply curve slopes upward, the market demand curve slopes downward, and the equilibrium rental price equals $\$3.50$to see more movies at cinemas with their friends and Family members.

Explanation (a)

(a) If people's taste changes, then it affects on the demand curve, because people will opt for other brand. As a response, the consumption curve to shift left. Leftward shift within the demand curve causes reduction within the price.

Given Information (b)

(b) The market supply curve slopes upward, the market demand curve slopes downward, and the equilibrium rental price equals $\$3.50$more online movie-rental firms enter the market.

Explanation (b)

(b) Entry of the new storeswithin the market willcause increasethe provision. This increased supply willresult in decrease the demand comparatively. Thus, the demand curve will shift to leftward and consequently priceare decreased.

Given Information (c)

(c) The market supply curve slopes upward, the market demand curve slopes downward, and the equilibrium rental price equals$\$3.50$ to consumers of Purchasing movies online.

Explanation (c)

(c): Internetis that the substitute forthe merchandise. Therefore,a rise within the price of downloading chargesends up in increase the demand. Thus, the demand curve will shift tothe proper and therefore the price will tend to rise.