Answer to Question #308153 in Microeconomics for Usman ali

Question

Q-4. Consider the markets for film streaming services, TV screens, and tickets at movie theaters.

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

• Film streaming and TV screens

• Film streaming and movie tickets

• TV screens and movie tickets

b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens.

c. Draw two more diagrams to show how the change in the market for TV screens affects the markets for film streaming and movie tickets.

Answer 1

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

• Film streaming and TV screens: complements 

• Film streaming and movie tickets: substitutes

• TV screens and movie tickets: substitutes

b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens.

A technological advancement that reduces the input costs of a good increases supply, shifting the supply curve to the right and lowering equilibrium pricing.

c. Draw two more diagrams to show how the change in the market for TV screens affects the markets for film streaming and movie tickets.

The decrease in the cost of TV screens will lower the demand for movie tickets because the goods are substitutes for one another. This decrease in the cost of TV screens will also raise the demand for streaming sites because they are complementary goods.

Because TV screens and film streaming are complementary, an increase in TV screen supply leads to an increase in film streaming supply, as demonstrated below.