Answer to Question #306270 in Microeconomics for Khan

Question

Consider the markets for film-streaming services, TVs and cinema tickets.

a For each pair, identify whether they are complements or substitutes.

– film-streaming services and TVs

– film-streaming services and cinema tickets

– TVs and cinema tickets

b Suppose a technological advance reduces the cost of manufacturing TVs. Draw a diagram to

show what happens in the market for TVs.

c Draw two more diagrams to show how the change in the market for TV screens affects the

markets for film-streaming services and cinema tickets.

Answer 1

a) Substitute or complementary goods

Film-streaming services and TVs are substitute goods since one can either choose to stream film or to watch TV.

Film-streaming services and cinema tickets are complementary goods. One cannot stream films when they don't have cinema tickets allowing them to watch the film.

TVs and cinema tickets are also complementary goods since one cannot watch TVs in theatres or cinemas without first purchasing a cinema ticket.

b) A reduction in the cost of producing TVs will lead to a fall in the price of the TVs, this will lead to more people purchasing TVs in market. A demand curve will shift to the right indicating rise of demand due low prices.

The number of people purchasing cinema tickets and film-streaming will reduce. Many people will be having TVs at their homes and very few will go to cinemas and film-streaming. The demand for cinema tickets and film streaming will reduce, this will make the demand curve to shift to left.