Answer to Question #55016 in Microeconomics for mini

Question

Imagine you are working in the DVD rental industry and there is a permanent decline in demand DVD rentals. Do you think the price of renting DVDs rise, fall or stay about the same in the long run, ceteris paribus (assume a perfectly competitive market)? Explain.

Answer 1

In conditions of competitive market price of renting DVD fall in the long run becase of decreasing the demand on DVD rent. This competitive market is open and rental DVD is technological industry. In technological industry there is high speed of new techniques apearance and old once disappearance forever. So demand on DVD rent will never be the same previous level and price will fall permanently.