1.6. Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every video rental of a movie they authored.

They have no such agreement for movies shown on pay-perview television.

a. When the new writers’ agreement comes into effect, what will happen in the market for video rentals—that is, will supply or demand shift, and how? As a result, how will consumer surplus in the market for video rentals change?

Illustrate with a diagram. Do you think the writers’ agreement will be popular with consumers who rent videos?

b. Consumers consider video rentals and pay-per-view movies substitutable to some extent. When the new writers’

agreement comes into effect, what will happen in the market for pay-per-view movies—that is, will supply or demand shift, and how? As a result, how will producer surplus in the market for pay-per-view movies change?

Illustrate with a diagram. Do you think the writers’ agreement will be popular with cable television companies that show pay-per-view movies?