Question

What effect should each of the following have upon the demand for DVDs in a competitive market? Explain your reasoning in each case.

(a) the development of Blue-Ray Discs that compete with DVDs

(b) an increase in population and incomes

(c) a substantial increase in the number and quality of DVD players

(d) consumer expectations of substantial price increases in DVDs

Answer 1

(a) the development of Blue-Ray Discs that compete with DVDs, which may serve as a substitute to DVDs will lead to decrease in demand for the traditional DVDs. Some of the consumers may shift to Blu-Ray which may lead to the demand curve shifting to the left.

(b) an increase in population and incomes will lead to increase in demand for DVDs considering DVDs as a normal good. The demand curve will shift to the right.

(c) a substantial increase in the number and quality of DVD players will lead to more demand for DVDs. More DVD players would mean higher demand for DVDs. Thus the demand curve will shift to the right.

(d) consumer expectations of substantial price increases in DVDs will lead to higher current demand for DVDs. The consumer will demand more at the current price as they expect an increase in price in near future. Thus the demand curve will shift to the right.