Rented DVDs and movies shownin theaters are substitutes. Rented DVDs and plasma
ID: 1235882 • Letter: R
Question
Rented DVDs and movies shownin theaters are substitutes. Rented DVDs and plasma TVs arecomplements. Plasma TVs and movies shown in theaters are normalgoods. People watch rented DVDs more often in the winter than inthe summer. Most plasma TVs sold in the United States are importedfrom Japan. If the United States government reduces the number ofplasma TVs that can be imported into the United States, ceterisparibus, what would happen?a. The price of plasma TVs would increase and the rental price ofDVDs would decrease.
b. The price of plasma TVs and the rental price of DVDs woulddecrease
c. The price of plasma TVs and the rental price of DVDs wouldincrease
d. The price of plasma TVs would decrease and the rental price ofDVDs would increase
Explanation / Answer
If the US decreases the amount of imported TVs, that means areduction in supply, therefore an increase in price. Thatalready takes out options B and D. Now, we need to find therelation between the TVs and rental DVDs. In the problem, itsays that they are complements. Therefore, since this is true(and everything else is held constant, we know this because ofceteris paribus), there will be an increase in price on rentalDVDs. Answer C.