Question

Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will now receive 10% of the revenue from every video rental of a movie they authored, when they previously received no royalties. they have no such agreement for movies shown on pay-per-view television. when the new writers' agreement comes into effect, the result will be a ____ in the market for video rentals, which will ____ consumer surplus in the market for video rentals.

Answer 1

When the new writers' agreement comes into effects, the result will be a PRICE INCREASE in the market for video rentals, which will DECREASE the consumer surplus in the market for video rental.
Video rental and pay per view movies are substitute goods. The royalty payment that the screen writers are demanding for will increase the price of video rental and this will make the consumers to consume less of video rental and more of pay per view movies.