Supply and Demand and DVD movie rentals?

Each of the following events tends to change the demand or the supply of DVD movie rentals, and as a result, increases or decreases the price of a rental. In each case, indicate (i) whether supply or demand is affected; (ii) the determinant of supply or demand that is affected; and (iii) the change in equilibrium price and quantity that is predicted.

a.The federal government imposes a tax of $0.25 on each DVD movie rental.

b.The average price of going to a movie in a theatre increases by $2.00.

c.A TV station that airs recent movies drops its extra charge of $20.00 per

month, and now includes this service with the regular cable TV package.

d.Reality television programs become so popular that a large proportion of those seeking entertainment are enticed to spend much more time watching these programs

Supply and Demand and DVD movie rentals?chinese theater

a.The federal government imposes a tax of $0.25 on each DVD movie rental.

Ans: This shifts the supply curve parallely to the left because the supply will now be related to the tax inclusuve prices meaning that if supply was x at a price p earlier, now the same supply will be forthcoming at the tax inclusive price of $ (p+ 0.25). The new intersection of the demand supply curve will now occur to the left and above the earlier equilibrium point. Thus the new equilibrium price will be higher and equlibrium quantity will be lower as compared with the earlier equilibrium. In this case, the marginal cost of supply is increased as the the seller as to charge the tax to the buyers for each unit sold @ $0.25.

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Supply and Demand and DVD movie rentals?

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