If cable TV subscriptions and movie rentals are substitutes for ...

[cartlidgeashley]

If cable TV subscriptions and movie rentals are substitutes for each other, what is the effect in each of these markets of an increase in wages for people who work for the cable TV company? Use your analysis to determine the sign of the cross
 
  elasticity of demand between the quantity of movie rentals and the price of cable TV.

Question 2

The figure above shows the costs associated with producing paper. When paper is produced, there is some pollution runoff into a lake.
 
  According to the Coase Theorem, if the transactions costs are low and there are only a few people involved, the output will equal ________ tons of paper if ________ own the lake. A) 3; only the lakeside residents
  B) 3; either the firms or lakeside residents
  C) 4; the firms
  D) 4; either the firms or lakeside residents

[cdmart10]

Answer to Question 1

The supply curve of cable TV shifts leftward because wages are a cost of production, so the price of cable TV rises. Cable TV subscribers decrease the quantity of cable TV they demand (they move leftward along their demand curve for cable TV). Cable TV subscribers increase their demand for movie rentals (the demand curve for movie rentals shifts rightward) so that the equilibrium price and quantity of movie rentals both increase. Hence, when the price of cable TV goes up then the quantity of movie rentals increases, so their cross elasticity of demand is positive.

Answer to Question 2

B

[cartlidgeashley]

Thanks for the timely response, appreciate it

[aliotak]

Gracias!