question archive Netflix has introduced a new feature to allow customers to watch movies and television series on their personal computers
Netflix has introduced a new feature to allow customers to watch movies and television series on their personal computers
Subject:EconomicsPrice:2.88 Bought3
Netflix has introduced a new feature to allow customers to watch movies and television series on their personal computers. Netflix competes with video rental retailer Blockbuster, which added an online rental service to the in-store rental service.
a. How will online movie viewing influence the price elasticity of demand for in-store movie rentals?
b. Would the cross elasticity of demand for online movies and in-store movie rentals be negative or positive? Explain.
c. Would the cross elasticity of demand for online movies with respect to high-speed Internet service be negative or positive? Explain.
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a. The price elasticity of demand will increase because there would be more substitutes for movie rentals. The more substitutes there are for a good, the more elastic its demand becomes, and the higher the coefficient of elasticity.
b. It would be positive because they are substitutes. When the price of one increases, the quantity demanded of the other increases.
c. It would be negative because they are complements. When the price of one increases, the quantity demanded of the other would decrease.
