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Netflix on-demand media

Photo of the Netflix Watch Instantly tab to watch movies and TV episodes instantly via streaming media
Netflix, Inc. is an American provider of on-demand Internet streaming media to many countries around the world, including the United States, and of flat rate DVD-by-mail in the United States. (Credit: modification of work by Traci Lawson/Flickr Creative Commons)

That will be how much?

Imagine going to your favorite coffee shop and having the waiter inform you the pricing has changed. Instead of $3 for a cup of coffee, you will now be charged $2 for coffee, $1 for creamer, and $1 for your choice of sweetener. If you pay your usual $3 for a cup of coffee, you must choose between creamer and sweetener. If you want both, you now face an extra charge of $1. Sound absurd? Well, that is the situation Netflix customers found themselves in—a 60% price hike to retain the same service in 2011.

In early 2011, Netflix consumers paid about $10 a month for a package consisting of streaming video and DVD rentals. In July 2011, the company announced a packaging change. Customers wishing to retain both streaming video and DVD rental would be charged $15.98 per month, a price increase of about 60%. In 2014, Netflix also raised its streaming video subscription price from $7.99 to $8.99 per month for new U.S. customers. The company also changed its policy of 4K streaming content from $9.00 to $12.00 per month that year.

How would customers of the 18-year-old firm react? Would they abandon Netflix? Would the ease of access to other venues make a difference in how consumers responded to the Netflix price change? The answers to those questions will be explored in this chapter: the change in quantity with respect to a change in price, a concept economists call elasticity.

Introduction to elasticity

In this chapter, you will learn about:

  • Price Elasticity of Demand and Price Elasticity of Supply
  • Polar Cases of Elasticity and Constant Elasticity
  • Elasticity and Pricing
  • Elasticity in Areas Other Than Price

Anyone who has studied economics knows the law of demand: a higher price will lead to a lower quantity demanded. What you may not know is how much lower the quantity demanded will be. Similarly, the law of supply shows that a higher price will lead to a higher quantity supplied. The question is: How much higher? This chapter will explain how to answer these questions and why they are critically important in the real world.

To find answers to these questions, we need to understand the concept of elasticity. Elasticity is an economics concept that measures responsiveness of one variable to changes in another variable. Suppose you drop two items from a second-floor balcony. The first item is a tennis ball. The second item is a brick. Which will bounce higher? Obviously, the tennis ball. We would say that the tennis ball has greater elasticity.

Consider an economic example. Cigarette taxes are an example of a “sin tax,” a tax on something that is bad for you, like alcohol. Cigarettes are taxed at the state and national levels. State taxes range from a low of 17 cents per pack in Missouri to $4.35 per pack in New York. The average state cigarette tax is $1.51 per pack. The 2014 federal tax rate on cigarettes was $1.01 per pack, but in 2015 the Obama Administration proposed raising the federal tax nearly a dollar to $1.95 per pack. The key question is: How much would cigarette purchases decline?

Taxes on cigarettes serve two purposes: to raise tax revenue for government and to discourage consumption of cigarettes. However, if a higher cigarette tax discourages consumption by quite a lot, meaning a greatly reduced quantity of cigarettes is sold, then the cigarette tax on each pack will not raise much revenue for the government. Alternatively, a higher cigarette tax that does not discourage consumption by much will actually raise more tax revenue for the government. Thus, when a government agency tries to calculate the effects of altering its cigarette tax, it must analyze how much the tax affects the quantity of cigarettes consumed. This issue reaches beyond governments and taxes; every firm faces a similar issue. Every time a firm considers raising the price that it charges, it must consider how much a price increase will reduce the quantity demanded of what it sells. Conversely, when a firm puts its products on sale, it must expect (or hope) that the lower price will lead to a significantly higher quantity demanded.

Questions & Answers

what is medium
Chinedu Reply
what is medium in terms of economics
Chinedu
as u mean medium of exchange or just as a word
rivan
What is the difference between inferior goods and complementary goods
Bernard Reply
inferior goods are goods whose demand reduces as consumers income increases
rivan
while complementary goods are goods which are jointly demand
rivan
Wow thanks
Bernard
you are welcome
rivan
define the term derived demand
rivan Reply
The Market equilibrium quantity is___ tons of bolts, the socailly optimal quantity of bolt production is ____ tons
Jackie Reply
please what are the key principles of Economics?
Amoako
how to learn about stock exchange market?
jason Reply
how to get to clearly know about BSE and NSE
jason
hiii
santosh
hii
Leela
hlo
Peter
i wanna know about ppf
Peter
Me too
Teremi
Search in web,
Leela
search in website
Leela
Search in web,
Leela
BSE means Bombay stock exchange,and NSE national stock exchange
Leela
What are the uses stastitics in business?
Mohamud Reply
what's scarcity
Brandon Reply
scarcity is the stage at which your end becomes greater than your want.
Caasianebok
what is marginal rate of transformation
Peter Reply
difference between individual demand and market demand with illustrations.
kwagala Reply
what is market demand
kwagala
Is the total amount of goods and services that all consumers are willing and able to purchase...
Istar
market demad business
zahid
What is the different between demand and supply?
Mohamud Reply
Demand is a natural phenomenon by a person who wants a certain commodity , u can say The ablity to buy a certain commodity at a certain price is called demand
Wardan
supply is point of view from Supplier of certain commodity
Wardan
Thnks wardan sheikh
Mohamud
u can get help from Law of Demand which is When a price of certain commodity increases it's quantity demanded decreases and when the price of certain commodity decreases it's quantity demanded increases and vice versa
Wardan
and to understand supply u can understand by the help of law of supply which is when a price of certain commodity increases it's quantity supplies also increases and when price of certain commodity decreases it's quantity supplies also decreases and vice versa
Wardan
Hope u got the answer
Wardan
hi
Christian
hello
Victory
what is point?
Asmatullah
pls it's quantity supplied not quantity supplies. tanx
PETER
Peter it's just typing error if u know better u should take initiatives and start helping people or u can just shut up
Wardan
What is the labour market?
Ruchi
Ruchi Shukla it's a big topic which contains several parts , u can understand a market where there are number of employees (skilled and semiskilled )
Wardan
describe the economic systems
kivumbi
ryt nice
Destiny
what is the cause of a country's population
Destiny
Destiny Abekah the cause Is fun ahahahaha
Wardan
Hi
Crahmaan
What is going here?
Crahmaan
Hi
Jacob
what is naxion shoks any 1 can explain please
Iftikhar
hello
Hydrammeh
impact of transport and communication for economic help me
Jacob
according to me supply is the amount of goods and services that a seller is prepared to offer at a given prior of time while demand is the amount of goods and services that a consumer is enable and willing to pay at a given period of time ..... according to my understanding
rivan
What is the formula for calculating elasticity
Destiny Reply
Change in Quantity/Change in price
Abdul
ok
Destiny
E=%∆ in Q/ %∆ in P
ashafa
what mean elasticity
Jimcaale
change in quantity divided by change in price
mukhtaar
ok
Abdul
price elasticity = Q2-Q1/Q2+Q1/2/ P2-P1/P2+P1/2
Wardan
second formula is change in q / change in p × Q(original)/ p (original)
Wardan
Elasticity is just a measurement of change influenced by change in price , income
Wardan
change quantity /change in price
Ayaan
ok
Muhammad
change in price change in quality
Muhammad
yes
Thomas
calculations are mob eg cross elasticity,relevate n others mob which do u mean
rivan
public economy vs public choice
martha Reply
cool n you
Godwin
nice
Saratu
thank God
Destiny
so wat is going on
Destiny
please understand change in demand.
Saratu
learning is going on please.
Saratu
demand changes when the price of the commodies in the market increaaes
Destiny
amd vise veser
Destiny
thank you.
Saratu
same to u
Destiny
I need help with PED and PES
XORO Reply
Price elasticity demand
Saratu
price elasticity supply
Saratu
What are the uses of stastitics in economic and business?
Mohamud Reply
Statistics helps in analysing various economic problems such as inflation, unemployment etc by looking at numbers, trends over the years.
Samuel
it also helps in summarising mass data like income, consumption etc into measures like per capita income and per capita consumptions which are more explanatory of how an economy is performing.
Samuel
Statistics is a data interpretation tool used for collecting, classifying and analyzing data. It is an indispensable tool for an economist to understand various business and economic problems and formulate policies to tackle with them.
Samuel
good answer
Destiny
how is the firm know elasticity
Shekwonudiza Reply
What is margin?
Crahmaan

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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