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. National DVD-rental chains open a number of new stores in this market.
b. There is a significant increase in the price of downloading movies on the Internet.

Explanation / Answer

1) mkt clearing price will be less than $3.5 demand curve for individual firm will observe downward shift 2)due to outward shift of demand curve in mkt, price will rise. demand curve for an individual firm shifts upward

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