- Determine Which of the Demand Curve Shifters (PYNTE) Would Apply to Each Situation. Explain Whether the Event Will Increase or Decrease Demand for Movie Tickets. Tell Whether the Demand Curve Shifts to the Right or to the Left:
- A Decrease in the Incomes of Consumers of Movies
The demand curve shifter that would apply in this case is income. A decrease in the income of movie consumers would reduce the demand for movie tickets. Therefore, the demand curve moves to the left because fewer tickets are demanded at every price given the constrained income. An increase in movie consumers’ income will reverse the situation by causing the demand curve to shift to the right.
- An Increase in the Price of Red Box Movie Rentals
The affected shifter variable, in this case, is “the price of related goods.” When Red Box movie rental becomes expensive, movie tickets’ demand will increase because more people will be willing to enjoy movies in theatres rather than renting them. Because the demand for movie tickets goes up, the demand curve will move to the right. A reduction in the price for Red Box tickets will once again make renting more attractive. Therefore, the demand for movie tickets will shift inwards in response to price changes.
- An Increase in the Number of Consumers in the Market for Movies
The affected shifter variable, in this case, is the demographic characteristics. An increase in the consumer population will cause an increase in the demand for movie tickets. As movie ticket demand goes up, the demand curve shifts to the right to reflect the high number of ticket buyers. An increase in the number of consumers may result from an increase in population (Sexton, 2016). If the number of movie consumers reduces, the demand curve will shift to the left.
- Determine Which of the Supply Curve Shifters (SPENT) Would Apply to Each Situation. Explain Whether the Event Will Increase or Decrease the Supply of Movies. Tell Whether the Supply Curve Shifts to The Right or to the Left:
- The Cost to Produce Movies Increases
The shifter variable affected in this case is the prices of factors of production. An increase in the cost of production will cause the supply curve to shift to the left. The supply curve shifts inwards because suppliers are willing to supply fewer goods at higher production prices. An increase in movie production costs may originate from higher licensing fees, increased distribution costs, government regulations, and higher wages. Therefore, producers will respond to such changes by reducing the number of movies produced. A reduction in the production cost will shift the curve to the right.
- The Number of Studios that Make Movies Decreases
The shifter variable affected in this case is the number of sellers. A reduction in the number of studios that make movies will cause the supply curve to shift to the left. The change in the number of sellers in the industry reduces the number of goods/services available at each price (Sexton, 2016). The forces of demand and supply are still active in this situation. However, the remaining movie studios cannot immediately fill the gap left by the outgoing studios. Therefore, the supply for movies will not meet the demand in the short term as the market adjusts to the reduced production capacity.
- Movie Theatres Expect the Market Price of Tickets to Decrease Next Month
The shifter variable affected in this case is the seller’s expectations. The supply curve for movie theatres will shift to the left because of the expected fall in demand. Production decisions are made long before the availing of ready products to the market (Sexton, 2016). Therefore, the suppliers will naturally reduce production because of low-level demand. In this regard, the movie theatres will reduce the number of tickets to reflect their awareness about the expected fall in demand.
- What Would Be the Impact of a Rental Price Ceiling Set Below the Equilibrium Rental Price? What If the Price Ceiling Was Set Above the Equilibrium Price?
Setting the price ceiling below the equilibrium price would cause a reduction in the number of rental units available in the market. Landlords will find renting houses unattractive and may convert rental units for other uses. While renters may find the homes affordable, landlords will spend less money on maintenance and other services like hygiene. The forces of supply and demand are still active, even under price ceilings. Therefore, setting price ceilings that are lower than the equilibrium price will cause housing demand to exceed supply, causing a shortage in rental housing. Rather than helping renters, the price ceiling may hurt them by causing an overflow of demand and reducing the quality and quantity of houses available in the market.
If the price ceiling is placed above the equilibrium price, landlords will charge either the highest acceptable price or a price close to the ceiling. Rental units will become attractive, prompting landlords to increase the available companies in the market. However, setting the price ceiling above the equilibrium price will make the rental units unattractive to buyers, causing a shift to more affordable units. There might be an oversupply of rental units in the market, causing flooding in the long term. This will eventually cause the market to self-adjust, pushing the current prices toward equilibrium.
- What Would Be the Impact of a Price Floor Set Below the Equilibrium Price for Wheat? What If the Price Floor Was Set Above the Equilibrium Price?
Setting the wheat price below equilibrium will initially increase the demand for wheat because of its affordability. However, producers (farmers) will not have the incentive to produce wheat. The cost of production will be higher than the benefit of selling wheat. In this case, farmers will reduce the amount of wheat grown in the farms in response to loss profitability, causing a reduction in the supply of wheat. The demand for wheat will eventually exceed the amount supplied in the market, resulting in a push of the price floor toward equilibrium price. While the demand curve will shift to the right, the supply curve will shift inwards, causing a mismatch in the equilibrium price and quantity. Therefore, setting a price ceiling below the equilibrium price will be detrimental to both suppliers (farmers) and consumers.
Setting the price of wheat above equilibrium will increase the attractiveness of wheat production. Farmers will have the incentive to produce more wheat, increasing the supply. Therefore, the supply curve will shift outwards as a response to the market’s attractiveness. On the other hand, setting a higher price than equilibrium will reduce the quantity of wheat demanded in the market. Consumers will shift to alternative sources of food, for example, rice. In this regard, the demand curve shifts to the left, indicating the willingness to purchase less wheat at the current prices. Eventually, there will be a mismatch between the demand and supply for wheat, causing the price to move towards equilibrium. Eventually, farmers will cut wheat production to match the market demand.
Sexton, R. L. (2016). Exploring economics (7th ed.). Boston, MA, USA: Cengage Learning.