Question

1. Consider the markets for DVD movies, TV screens and movie tickets.

a.For each of the indicated pairs, please identify if the goods are complementary or substitutes:

1) DVD’s and TV screens.
2) DVD’s and movie tickets.
3) TV screens and movie tickets.

b. Suppose a technological advance reduces the cost of producing TV screens, what happens in the TV screen market?

c. How the change in the TV screen market affects:

1) the DVD’s market?
2) the movie ticket market?

Answer 1

Number 1 (a)

Complementary

DVD’s and TV screens.

Substitute

DVD’s and movie tickets.

TV screens and movie tickets.

Number 1 (b)

TV screen market will increase, because more people will be able and willing to buy it.

Number 1 (c)

1. The DVD’s market which is a complementary good will increase, because more people will need to buy it to watch the TV screen

2. The movie ticket market will fall / reduce because its substitute good TV screen can be afforded at a lesser price.

Step-by-step explanation:

Complementary good means a good the needs each other to be able to give out the satisfaction needed. For example bread and tea.

Substitute good means a good used in place of another. For example Margarine and butter.