Magic Show Economics: From Rivalry to Equilibrium
(a) How would you classify the magic show with reference to rivalrous and excludability?
(b) How can we obtain the market demand function for freely available online magic shows?
(c) How do we draw the marginal social benefit curve for online magic show?
(d) What is the market equilibrium quantity and price of online magic shows if the magician produces them at a constant marginal cost of $20?
(a) Answer
The magic show can be classified as non-rivalrous and non-excludable. Non-rivalrous means that one person's consumption of the show does not diminish the ability of others to consume it. In this case, the magician's recording of the show can be accessed and viewed by multiple individuals simultaneously without any reduction in its availability. Non-excludable means that it is not feasible to prevent individuals from accessing and viewing the show. Since the magician has broadcasted the show freely on the internet, anyone with internet access can watch it without any barriers or restrictions.
(b) Answer
To obtain the market demand function for freely available online magic shows, we need to sum the individual demand functions of the consumers. The market demand function (Q) would be the sum of individual quantities demanded (QA and QB), and the market price (P) would be the average of the individual prices (PA and PB). So, the market demand function for online magic shows would be Q = QA + QB = (5 - 0.25PA) + (15 - 0.5PB).
(c) Answer
The marginal social benefit (MSB) curve for online magic shows can be obtained by summing the individual marginal benefits of the consumers at each quantity. The MSB curve represents the additional benefit society receives from each unit of the good. The MSB curve would be the sum of the individual marginal benefit curves.
(d) Answer
If the magician produces the magic show at a constant marginal cost of $20 and the market is in equilibrium, the market equilibrium quantity and price can be determined by setting the market demand equal to the marginal cost. In this case, the equilibrium quantity would be 20. By substituting the individual demand functions into the market demand equation, we can solve for the equilibrium quantity. The equilibrium price would be the marginal cost of $20.
Understanding the economics of magic shows, especially those freely available online, involves analyzing concepts of rivalry, excludability, market demand functions, and equilibrium prices. The classification of the show as non-rivalrous and non-excludable highlights the unique nature of online content consumption.
To obtain the market demand function for online magic shows, we need to consider the individual demand functions of consumers and sum them to get the total market demand. Drawing the marginal social benefit curve helps us understand the societal benefits derived from each unit of the good.
In the case of a magician producing magic shows online at a constant marginal cost, the market equilibrium quantity and price can be determined by setting the market demand equal to the marginal cost. This equilibrium point signifies a balance between supply and demand in the market.