Question

Consider the market for movie theater tickets:

The cost of leasing movies increases for theaters. Draw the initial demand and supply graph and then draw the new supply or demand curve on the graph of the market for movie theatre tickets. Label the new curve, and the new market equilibrium price and quantity.

Answer 1

Higher cost of leasing movies increases the cost of business for movie theaters, so movie sellers lower production and output. Market supply falls, shifting supply curve leftward, increasing price and decreasing quantity.

In following graph, D0 and S0 are initial demand and supply curve for movies intersecting at point A with initial price P0 and quantity Q0. After supply falls, S0 shifts left to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.