Exam Question

I hope my international economics students can answer the following:

Consider the recent movie X-Men Origins: Wolverine and then answer the following:

a. Using the graph illustrating the market for the movie, indicate the areas of rent, consumer surplus, and deadweight loss. (3 points)

b. What characteristic does this product have which explains why the marginal cost is zero? (One word would suffice…provided it’s the right word, of course.) (1 point)

c. If the movie could be illegally downloaded, who along the demand curve should download it to maximize efficiency? (You may indicate your answer on the graph, but make sure you clearly distinguish it from other things you’ve indicated on the graph.) (2 points)

d. Many people who saw this movie were disappointed. What type of asymmetric information problem does this represent? Why do you say so? (Think about when the problem occurred in relation to when the transaction occurred.) (2 points)

e. Suppose people had perfect information about the quality of the movie (assume the demand curve before this point reflected estimated benefit which, as noted in (d), is too high). Recalling your answer in part (c), would the optimal number of illegal downloads increase, decrease, or stay the same? Why? (2 points)