Consider a market where the price elasticity of the demand for streaming services is -0.6, the price
elasticity of demand for movie tickets sold during the evenings is -0.8, and for matinee shows is -1.75.
Suppose also that the cross elasticity of demand for movie tickets sold during the evenings with respect to
the price of streaming services is 0.2, the cross elasticity of demand for matinee movie tickets with
respect to the price of streaming services is 0.1, and the cross elasticity of demand for matinee shows with
respect of the price of evenings shows is 1. Moreover, the income elasticity of demand for movie tickets
sold during the evenings is 0.7, and the income elasticity of demand for matinee movie tickets is -0.3.
Use this information to answer the following questions.
1. Suppose that the price of streaming services rises by 7%; what is the percentage change
in the number of streaming service subscriptions? How would you characterize the demand for
streaming services? Draw a theoretical diagram demonstrating this change.
2. Suppose that the price of streaming services rises by 7%; what is the percentage change
in the quantity demanded of movie tickets for evening shows? Pay close attention to whether the
answer is negative or positive; the sign is important. How would you characterize the
relationship between both services? Draw a theoretical diagram demonstrating this change.
3. Suppose that the price of streaming services rises by 7%; what is the percentage change
in the quantity demanded of movie tickets for matinee shows? Pay close attention to whether the
answer is negative or positive; the sign is important. How would you characterize the
relationship between both services? Draw a theoretical diagram demonstrating this change.
4. Suppose the price of streaming services rises by 7%; by how much would the price of
movie tickets for matinee shows have to change for the quantity demanded to remain unchanged?
Indicate whether the price should increase or decrease. Draw a theoretical diagram demonstrating
this change.
5. Suppose that income increases by 12%; what is the percentage change in the quantity
demanded of movie tickets sold during the evening? Pay close attention to whether the answer is
negative or positive; the sign is important. How would you characterize the evening shows?
Draw a theoretical diagram demonstrating this change.
6. Suppose that income increases by 12%; what is the percentage change in the quantity
demanded of movie tickets for matinee shows? Pay close attention to whether the answer is
negative or positive; the sign is important. How would you characterize the matinee shows?
Draw a theoretical diagram demonstrating this change.
7. AMC Theaters is considering a 10% increase in movie ticket prices for all showtimes. If
you were consulted about this proposal, what would your advice be? Explain your
recommendation to AMC Theaters and the economic rationale behind it. Your report to AMC
Theaters must include the percent change in total revenue resulting from implementing the 10%
movie ticket price increase for both showtime groups.
8. What change would you expect in the number of moviegoers to the matinee shows if
AMC Theaters increased the movie ticket price for the evening showtimes by 10%? Draw a
theoretical diagram demonstrating this change.
