Question

Imagine you are working in the DVD rental industry and there is a permanent decline in demand DVD rentals. Do you think the price of renting DVDs rise, fall or stay about the same in the long run, ceteris paribus (assume a perfectly competitive market)? Explain.

Answer 1

If you are working in the DVD rental industry and there is a permanent decline in demand DVD rentals, then the price of renting DVDs will fall in the long run, ceteris paribus, because the fall in demand will decrease the equilibrium price and quantity.