Question

eenwriters negotiate a new agreement with movie producers stipulating eceive 10% of the revenue from every rental of a movie they wrote. They ve no such agreement for movies shown on on-demand television. the new writers' agreement comes into effect, what will happen in the market for vie rentals—that is, will supply or demand shift, and how? And, as a result, how will consumer surplus in the market for movie rentals change? Illustrate with a diagram. Do vou think the writers' agreement will be popular with consumers who rent movies? b. Consumers consider movie rentals and on-demand movies substitutable to some extent. When the new writers' agreement comes into effect, what will happen in the market for on-demand movies that is, will supply or demand shift, and how? And, as a result, how will producer surplus in the market for on-demand movies change? Illustrate with a diagram. Do you think the writers' agreement will be popular with the cable television companies that show on-demand movies? c. More consumers are shifting their movie watching preferences from Redbox rentals to streaming services like Netflix and Amazon Prime. What will happen in the market for movie rentals after the shift in movie preferences? How will producer surplus in the market for movie rentals change? Illustrate with a diagram. How will the shift to streaming movies affect movie rental companies and Hollywood screenwriters?

Answer 1

a) If screen writer demands a share in rentals, then cost of renting a move will increase. This will shift the supply curve to left, because now it's more costly to supply movie rentals in market. Consumer surplus falls. Hence, this negotiation would be opposed by consumers.

Supply new Root supply Demand Seppola ot * & rentals

consumer surplus falls by area b+c

b) As cost of renting a movie increases, more consumers shift to on-demand movies, so demand for on-demand movies will rise. This increases the producer surplus in that industry. So, writers agreement will be popular with cable companies.

Supply Demand -Demand A on-ol

producer surplus increase by area b+c

c)AS more consumers are demanding less of movie rentals because of Netflix and Prime, market for movie rentals will shrink. producer surplus in movie rental market will fall. Companies will have less consumer base and Hollywood screenwriters will also suffer due to fall in demand of their products:

supply new ിള്ള supply Demand Sepeda - New Demand oko* rentals

Producer surplus falls by shaded area. it is left with only d amount of surplus due to fall in demand