Analysis of the supply and demand influence and price elasticity of film products based on the principle of Economics

【Abstract】According to the principle of economics， studying how the price of film products and other factors affect the supply and demand of film products， analyzing the price elasticity of film products， researching on the relationship between film companys cost and film supply， and then put forward a suggestion on movie tickets.

【Key words】film products； supply and demand； elasticity

【作者簡介】莊園園（1990- ），女，漢族，河南蘭考人，現就讀于新疆財經大學MBA學院工商管理專業，研究方向：市場營銷與國際商務。

The price of a commodity is determined by the value and is influenced by the supply and demand. The film products can be discussed as a general commodity in the cultural consumer market， and its commodity properties are applicable to the principles of economics.

The film is an invisible commodity. Audiences can get spiritual pleasure through watching movies to satisfy their spiritual needs. With the development of science and technology， audio-visual devices appear for consumers to watch videos at any time. The development of substitutes such as Network TV enables ordinary consumers to watch movies at anytime and anywhere. And the cinema became a consumer place for specific population to watch the latest movies.

As the film market and industry in China is growing rapidly， the Chinese film market gradually evolved into the competitive market. Of course， there are still some administrative barriers and monopolistic behavior in the current Chinese film market.

The film products studied in the following article refer to the film products that released in the cinema. And we use the ticket price to measure the price of the film products.

1. The market forces of supply and demand

1.1 The demand and the supply of film products

According to the law of demand， as the price of a good falls， the quantity demanded rises. The increase in the demand for film products is also affected by the reduction in the price of film products. The film product is different from other industries products， and it has special properties. The film product is a good for which， other things equal， an increase in income leads to an increase in demand. In addition to price and income， TV and Network TV as substitutes for films， when the price of the film increases， it can lead to an increase in the demand for the substitutes and a decrease in the demand for films.

According to the law of supply， when the price of the film rises in the film market， the film publisher is profitable， the amount of supply and the amount of circulation are increased. In addition to price， other determinants of how much producers want to sell include input prices， technology， expectations， and the number of sellers.

1.2 The self-adjustment of the film market

The intersection of the supply and demand curves determines the market equilibrium. At the equilibrium price， the quantity demanded equals the quantity supplied.

The behavior of film consumers and film producers naturally drives markets toward their equilibrium. When the market price is above the equilibrium price， there is a surplus of film products， which causes the market price to fall. When the market price is below the equilibrium price， there is a shortage of film products， which causes the market price to rise.

In market economies， the price of films are the signals that guide production and marketing decisions. For the film product in the economy， the price ensures that supply and demand are in balance. The equilibrium price then determines how much of viewers choose to consume， how much publishers and manufacturers choose to produce.

2. The elasticity of demand

The price elasticity of demand measures how much the quantity demanded responds to changes in the price， which calculated as the percentage change in quantity demanded divided by the percentage change in price. If quantity demanded moves proportionately more than the price， then the elasticity is greater than one， and demand is said to be elastic.

The price of movie tickets in the Chinese film market is 1% or more of the average people's monthly income， which is far higher than that of other countries. With the rise of movie ticket prices， movies that are popular culture consumer goods in other countries in the world are becoming niche consumer goods and luxury consumer products in China.

Therefore， for film products， the price demand of them is more elastic. Besides， the quantity demanded moves proportionately more than the price， thus the elasticity of film products is greater than one. For all of this， not only because film products have more substitutes， but also they belong to the luxuries rather than the necessities.

Total revenue， the total amount paid for a good， equals the price of the good times the quantity sold. For the film products， their demand is elastic. Due to the increase（fall） in price will be smaller than the decrease（increase） in quantity demanded， if the price of the film product rises， the demand for them falls， and total revenue will fall； if the price of the film product falls， the demand for them rises， and total revenue will rise.

3. A price floor

A price floor is a minimum on the price of a good or service. As for the film industry， on the one hand， producers and issuers often use their monopoly position to make minimum price measures on films， resulting in the movie market having a price floor but no price ceiling， limiting the pricing power of different regions. On the other hand， theater pricing is often followed by customary pricing by continuing the monopoly of the original distribution system.

We should establish a market competition mechanism， strengthen the marketing initiative of the enterprises， set up the price of films by focusing on the micro market， take the market demand as the standard， rather than simply take the cost as the guidance.

Under the current buyer's market condition， film company should be more concerned with the market features and the actual needs under the market segmentation， adjust pricing strategy according to changes in the demand of customers for films， and finally let the price of films return to the acceptable level of the general public， and provide high quality and inexpensive products for general film consumers.

4. Marginal Cost and average cost

The goal of firms is to maximize profit， which equals total revenue minus total cost. In order to reduce the long-term average cost with the increase of output for film production， the film company should devote itself to the economic effect of scale. In this long-run equilibrium， all film companies produce at the efficient scale， price equals minimum average total cost.

The film production is a kind of copyright product， which has the character of extremely low marginal cost and decreasing average cost. When the output of film products smaller than the equilibrium quantity， the value of the product to the marginal film consumers is greater than the cost to the marginal producers so total surplus would rise if output increases. When the output of film products greater than the equilibrium quantity， the value of the product to the marginal film consumers is less than the cost to the marginal producers so total surplus would rise if output decreases.

We assumed that if a resource is limited in quantity， entry in the film industry of new firms will increase the price of this resource， raising the average total cost of production. If firms have different costs， then it is likely that those with the lowest costs will enter the industry first. If the demand of film consumers for film products then increases， the firms that would enter will likely have higher costs than those firms already in the market.

5. Summary

The demand of film products and the price of them interact with each other. According to the law of demand， as the price of the film product falls， the demand for it rises. Conversely， an increase in demand raises prices and leads to profits， and a decrease in demand lowers prices and leads to losses.

Different from the necessities， the price demand of film products with more substitutes is more elastic， and the elasticity is greater than one. For the film products， if the price of the film product falls， the demand for them rises， and total revenue will rise. On the other hand， in order to reduce the long-term average cost with the increase of output for film production， the film company should devote itself to the economic effect of scale.

As for the film industry， there are still some administrative barriers and monopolistic behavior in the current Chinese film market， producers and issuers often use their monopoly position to make minimum price measures on films.

The high price of domestic films makes the general audience more difficult to bear. Especially in the cities and regions with good economic development， low income people have high barriers to entering the cinema. What we need to think about is whether the expensive ticket price can make the film industry develop continuously and grow rapidly. In the face of the impact of TV and Network TV， we need to grasp the supply and demand of film products and the price elasticity， and adjust the movie ticket price timely， so as to stimulate consumption and increase consumption of consumers.

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