Question

When the number of movie theaters substantially increases the price of movie tickets slightly drops, but the number of moviegoers drastically increases. This implies that:

Select one:

a. The demand for films is fairly vertical

b. The demand for films is fairly horizontal

c. Demand and supply for films are both completely horizontal

d. The supply of films is fairly horizontal

e. The supply of films is fairly vertical

Answer 1

a.

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Ed=% change in the Qd / % change in the price

As it has been given that when the number of movie theaters substantially increases the price of movie tickets slightly drops, but the number of moviegoers drastically increases. This implies that the demand for films is fairly horizontal.

This is because supply of movies theatre are relatively inelastic in supply because in short-run number of theatre cannot be increased. But the demand is fairly elastic (horizontal). This is the reason with the increase in the number of theatre price decreases slightly but number of movie goers increase in large number.

Hence option b is the correct answer.