Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every video rental of a movie they authored. They have no such agreement for movies shown on on-demand television.
When the new writers’ agreement comes into effect, what will happen in the market for video rentals?
As we’ve just seen the supply curve will shift to the left while the demand curve remains constant. Price of movie rentals will rise and quantity of movie rentals will fall. Keeping this in mind, how will consumer surplus in the market for video rentals change? Referring to the following graph, identify the change in consumer surplus:
Consumers consider video rentals and on-demand movies substitutable to some extent. When the new writers’ agreement comes into effect, what will happen to the supply and demand curves and to price and quantity in the market for on-demand movies?
How will producer surplus in the market for on-demand movies change when the new writers' agreement is finalized? Using the following graph, identify the change in producer surplus: