Eco10004 Economic Principles

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Question 3a

When immigration increase, the demand for movies in theatres will increase because population and demographics is a variable that shifts market demand. As population increases, the demand for most goods and services will increase. This will result in a market shortage, as movie theatres cannot dictate the quantity of movies released into theatres.

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Question 3b

When the price of video rentals fall by 40%, movie theatres will see a decrease in demand for their service because of prices of related goods. Movie rentals are a substitute – goods or services that can be used for the same or similar purpose. There will also be a shift in supply due to the price of said substitute in production. While a decrease in the price of the substitute in production increased the supply of the initial good. This means that movie theatres will try to lure back customers by releasing more movies to incite and creating a surplus (a situation in which the quantity supplied is greater than the quantity demanded), as movie rentals store cannot get the most recent movies whereas movie theatres can.

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Question 3c

When movie theatres in the area close down, this will decrease the supply as firms are exiting the market. This leads to a shortage in the market, which will lead to the demand of movie theatres increasing.

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Question 3d

When the Netflix is released in Australia, movie theatres will see a decrease in demand for their service because of prices of related goods. Netflix is a substitute. There will also be a shift in supply due to the price of said substitute in production. While a decrease in the price of the substitute in production increased the supply of the initial good. This means that movie theatres will try to lure back customers by releasing more movies to incite and creating a surplus, as Netflix cannot gain the rights to release the same movies that movie theatres can.

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Question 4

A shortage is a situation in which the quantity demanded is greater than the quantity supplied whereas scarcity is the situation in which unlimited wants exceed the limited resources available to fulfil those wants.