Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every rental of a movie they wrote. They have no such agreement for movies shown on on-demand television. (a) What will happen to the market for movies when the agreement took place. How the consumer surplus changes in the market for movie rentals change? (b) What happens to market for the movie when consumers consider movie rentals and on-demand movies as substitutes? What happens to producer surplus ? (c) What happens when the movie- watching preferences will change? Concept Introduction: Consumer Surplus: t is defined as the difference between consumer’s willingness to pay and how much does a consumer pay for the goods and services. It is the area above the price level and below the demand curve. Producer Surplus: It is defined as the difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept for the good. It is the area below the price level and above the supply curve.

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Chapter 4, Problem 13P

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Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every rental of a movie they wrote. They have no such agreement for movies shown on on-demand television.

(a) What will happen to the market for movies when the agreement took place. How the consumer surplus changes in the market for movie rentals change?

(b) What happens to market for the movie when consumers consider movie rentals and on-demand movies as substitutes? What happens to producer surplus?

(c) What happens when the movie- watching preferences will change?

Concept Introduction:

Consumer Surplus:

t is defined as the difference between consumer’s willingness to pay and how much does a consumer pay for the goods and services. It is the area above the price level and below the demand curve.

Producer Surplus:

It is defined as the difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept for the good. It is the area below the price level and above the supply curve.

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