\"The retail online seller Amazon introduced a new feature Tuesday to allow prim
ID: 2439226 • Letter: #
Question
"The retail online seller Amazon introduced a new feature Tuesday to allow prime members to watch movies and television series on their mobile phones, computers and Television. ... Amazon has been competing with video rental retailer Blockbuster, which has added an online rental service to the instore rental service." Modified News Article
a. How will the offering of online movie viewing influence the price elasticity of demand for in-store movie rentals?
b. Would the cross elasticity of demand for online movies and in-store movie rentals be negative or positive? Explain.
c. Would the cross elasticity of demand for online movies with respect to high-speed internet service be negative or positive? Explain.
Explanation / Answer
a. The provision of online movie viewing will give consumers a wider option for watching movies. The in store movie rentals are likely to be affected greatly by the new online viewing offer. Thus, the rentals are likely to fluctuate in a large way as and when the online charges change. This makes the in store rentals more fluctuative that is more elastic.
b. The demand for online movies and in-store movie rentals are substitutes for one another. As the price of online movie viewing increases, the demand for in-store movie sale increases. Thus, the cross-elasticity of demand is positive.
c. High speed internet is something that boosts the demand for online movie viewing since it makes it an easier experience with full speed download. Thus, both of these are complementary goods. As the price of any one of them rises, the demand for the other will fall, since both are used together.
Thus, the cross-elasticity of demand for online movies with respect to high-speed internet is negative.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.