Consider the markets for film streaming services, TV screens, and tickets at movie theaters. a. For each pair, identify whether they are complements or substitutes: Film streaming and TV screens Film streaming and movie tickets TV screens and movie tickets b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens. c. Draw two more diagrams to show how the change in the market for TV screens affects the markets for film streaming and movie tickets.

Understanding the interactions between different goods is critical in economics. Two key terms in this domain are complements and substitutes. Complements are goods that are often used together, meaning that when the demand for one increases, the demand for the other tends to increase as well. A classic example is peanut butter and jelly; when more people buy peanut butter, the demand for jelly usually goes up. Substitutes, on the other hand, are goods that can replace each other. If the price of coffee rises, some people might switch to tea, suggesting that these two goods are substitutes.

In the exercise, film streaming services and TV screens are identified as complements because the enjoyment and utility of streaming are enhanced with a TV screen. Conversely, film streaming services and movie tickets are substitutes as they are different ways of experiencing a movie. The decision to consume more of one typically comes at the expense of the other.

In the market, these relationships impact consumer choices. A drop in the price of a complement leads to increased demand for its paired good. Similarly, when a substitute becomes more expensive or less available, consumers may switch to an alternative product, increasing its demand.

The demand and supply curves are essential tools in economics to visualize the relationship between the price of a good and the quantity demanded or supplied. The demand curve slopes downwards from left to right, indicating that as price decreases, quantity demanded increases. The supply curve typically slopes upwards, showing that a higher price incentivizes producers to supply more.

Let's illustrate this with the provided textbook exercise. A technological advancement in TV screen manufacturing is likely to decrease production costs, resulting in suppliers being willing to offer more TV screens at each price point. This scenario is represented by a rightward shift in the supply curve on a graph. It demonstrates that at the same prices as before the advancement, more TV screens are available, or alternately, the same number of screens can now be sold at lower prices.

Changes in the demand or supply curves can result from various factors, including technological advancements, changes in production costs, consumer preferences, and more. These shifts are critical for predicting how markets will react to different conditions.

In any given market, the equilibrium price and quantity represent a balance where the quantity of goods supplied equals the quantity demanded. It is the point at which the demand and supply curves intersect. At equilibrium, the market is stable, with no tendency for the price to change, as long as other factors remain constant.

When a technological advance reduces the cost of manufacturing TV screens, as depicted in the exercise, it shifts the supply curve to the right, indicating an increased supply. The new equilibrium point will be at a lower price and higher quantity than before the technological change. This is because the market needs to clear the additional supply, which typically happens through a reduction in price.

This change in the TV screen market also affects its complements and substitutes. For film streaming services (a complement), the increased availability of inexpensive TV screens encourages more people to stream films, thereby increasing the demand for streaming services. On the other hand, for movie tickets (a substitute), the appeal of in-home entertainment might rise, leading to a decrease in demand for going out to the movies. This indicates that understanding equilibrium is vital for predicting how external changes will impact a market.