2. Consider the market for DVD movie rentals, which is perfectly competitive. Th

Question

2. Consider the market for DVD movie rentals, which is perfectly competitive. The market supply curve slopes upward, the market demand curve sloped 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 the demand curve faced by the individual rental store.

a. People’s tastes change in favor of going to see more movies at cinemas with their friends and family members.
b. National DVD-rental chains open a number of new stores in this market

Explanation / Answer

1) there is inward shift of Demand curve prices will come down i.e. less than 3.5$ there will be downward shift of individual firm's demand curve 2) in this case also same will happen, ( as there is outward shift of supply curve.

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