a. Draw a graph of the market for streaming music with a price of $10 a month.
Question:
a. Draw a graph of the market for streaming music with a price of $10 a month. On your graph, show consumer surplus and producer surplus.
b. With a price of $10 a month, is the market efficient or inefficient? If it is inefficient, show the deadweight loss on your graph.
The price of streaming services has been $10 a month or zero. Amazon and Pandora Media are poised to change the streaming scene. Pandora is a streaming Internet radio service, and its new $5 version will be more like Spotify and Apple Music, which let users create their own playlists. Amazon, which offers limited on-demand music for $99 a year, is expected to expand its catalog and offer it for $10 a month or $5 a month for customers who use the Echo, Amazon’s voice-activated speaker system.
Assume that the marginal social cost of streaming is zero. (This assumption means that the cost of operating a streaming service doesn’t change if more people stream more songs.)
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