Assignment Overview:-
Q1. The cost associated with the movies is very high. Thus it is very important that the movies are created after complete study of cost and the revenues it can generate. Thus the major areas that influence the creation of a movie are what is actually being produced, who the target audience is and how it is being produced. For Example as stated in the case the cost of movie tickets in China is on the higher side and thus the main movies that are shown in the theatre are that can attract high income group as they can afford the costs of watching movies in theatre. Thus as mentioned in the case more number of IMAX 3D movies were shown in the theatres in China, which shows that the creation of movies is largely dependent on the audience.
Q2. If a movie is created by self interested choices and is accepted by the society, it will increase the entertainment in the society. This increase of entertainment in the society leads to building of strong society and thus leads to the social interest.
For example the development in the field of computers by Bill Gates was in Self Interest but ultimately it has lead to the social interest as it has benefited the society as a whole. Similarly the movies that are created by self interest will lead to social interest if it can generate benefits to the society which in this case is entertainment.
Q3. There are quite a few incentives of watching movies in China. Firstly since the price is high the number of people actually watching the movie will be less thus it will be more satisfying as the disturbances will be less. Also since the price is high, the quality will be good that will be provided by the supplier. Thus it will lead to higher standards. Some of the benefits that will be involved are that the satisfaction level will increase as due to high cost the quality will improve and thus the satisfaction (The Economist, 2010). Secondly the consumer will be able to explore other possible services that are complimentary to movies and thus can be a suitable replacement. The cost of watching movies in theatre include the additional cost that will have to be paid, this can also be called the opportunity cost. Second is the cost associated with the making this decision which will include the cost associated with the research on the alternatives. The choice that is made may not be rational as there may be the difference in the income level that may influence the decision.
Q4. a) This was not exactly a trade off. Trade Off occurs when there is a compromise and the resources are spent on one thing when the other alternative is more impressive and it is implied forcefully. In this case it was the sole decision and thus was not forcefully applied.
b) The opportunity cost is 20% marks. This is because it is the cost that has been paid i.e. the marks by watching the movie that time could have been spent in studies rather than watching movies.
Q5. a) The law of demand states that the demand of goods or services increases if the price of goods or services is reduced and vice versa (Fuller & Proctor, 1997) . The other factors controlling the demand are kept constant. Thus as stated in the case to increase the demand of movie tickets in China the price of the movie tickets have to be reduced which currently is at very high price and thus is limited to a small section of society.
b) The substitution effect will have a major impact on the movie tickets. This is for two reasons. Firstly there are a lot of other sources of entertainment and thus there are a lot of substitutes that may be available. Secondly the prices are very high thus it makes the movie tickets being exposed to more substitutes than in other sectors. The substitutes for the movie tickets may include discos, drama and the other live concerts like music shows etc.
c) As the real income, the income that is actually realized by individual is increased the demand will increase (Besanko &Braeutigam, 2007). This will also be true even if the price of goods is high. This is true as the individuals or consumers will be willing to pay more with the increase in the income level. Thus the demand curve will shift which will result in the increase in price level of the goods or services, which is movie tickets in this case.
d) Factors that may increase the demand of the movie tickets are the increased income levels as with the increase of income levels people will be more willing to buy the movie tickets even though the prices are high (Gillespie, 2011). Another factor that may increase the demand for movie tickets is the price and availability of substitutes. As discussed above there are quite a few substitutes that are there. If the options of these substitutes are reduced or the price is increased the demand for movie tickets will increase. Also according to the law of demand the demand will increase with the reduction in price for movie tickets.
Q6. According to the law of supply, the supply of goods or services in a market depends on the price in the market (Besanko, 2008). This is to say that if the price of goods or services are increased and other factors are kept constant the supply of the goods or services will increase. Since the price of movie tickets is high this will lead to more supply as the suppliers will expect more profits to be earned.
Q7. The elasticity of demand is defined as the ratio of percentage change in demand to percentage change in price. Since the price of movie tickets is quite high. Thus if the prices are reduced the demand will increase rapidly. Thus the ratio of percentage change in demand to percentage change in price will be high and thus the demand for movie tickets is elastic.
References:
David Besanko, Ronald Braeutigam (2007) Microeconomics: Study Guide: An Integrated Approach
Neil Fuller, Nigel Proctor (rev.) (1997) Fundamental Economics
David Besanko (2008) Microeconomics: International Student Version
The Economist (2010) Guide to Economic Indicators: Making Sense of Economics
Andrew Gillespie (2011) Foundations of Economics
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