A ''Contraction'' of Demand - 6 |
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We can show
the law of demand, when we look at a market in operation.
If movie tickets cost $10 each, the average person will go to the movies twelve times per year. This is represented as the point E on the graph. The cinema owner will gain revenue equal to the price of a cinema ticket, multiplied by the number of cinema tickets sold in a specified period of time. At a price of $10 per ticket, the cinema owner will gain a revenue of $10 x 12 = $120 |
If the price of movie tickets rises, to $12 each, the average person will go to the movies less often; nine times per year. This is represented as the movement along the demand curve from E to E1. At a price of $12 per cinema ticket, the cinema owner will gain a revenue of $108
If movie prices rise even further, to $14 per ticket, demand will contract even further to six visits per year. This is represented as the movement along the demand curve from E1 to E2.