Question

Downloads of digital entertainment goods, e.g., movies, songs, books, have marginal costs that are essentially zero. If sellers equate their actual margin with their desired margin in this setting, what is the implied price elasticity of demand?

Answer 1

All digital platforms that offer their services at free of cost to their customers actually aim to increase the number of subscribers and derive their income through advertisements and promotions .The elasticity of demand here is high as the quantity demanded is always high as it is for gratis .Owing to the zero or low marginal costs people tend to use more thus the demand is increased which in turn increases the supply curve .With the increase in sales and revenue the price elasticity of demand will be a positive number .