Chapter 23, Problem 2P

To determine

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.

1. People’s taste change in favor of going to see more movies at cinemas with their friends and family members.
2. More online movie rentals enter the market.
3. There is a significant increase in the price to consumers of purchasing movies online.

Concept Introduction:

Market demand: Market demand curve is the sum of all individual demand in the economy and is the graphical representation of market demand schedule.

Market supply: Market supply is the sum total of all individual supply in the economy and it is the graphical representation of the market supply schedule.