RVHS_H2_ECONS_Essay_Q1

Essay Question 1 Suggested Answers Increasing affluence and advances in modern technology have contributed to the proliferation of e-reading devices and e-books. In addition, an increasing number of publishing companies have started to produce e-books. Discuss how these developments might affect the revenue earned from the sales of e-books and related products. [25m] ---------------------------------------------------------------------------------------------------------------- The market for e-books consists of consumers who buy digital books online and publishing companies (e.g. Hachette, Har perCollins, and Penguin Random House) which sell e-books to consumers through onlin e retailers such as Amazon, Apple or Google. Associated markets of e-books incl ude its substitute (e.g. print books) and complement (e.g. e-reading devices). T he equilibrium price and quantity in these markets are determined by the intersection of their respective demand and supply. As such, any change in the demand an d/or supply will caus e a change in the equilibrium price and quant ity, and in turn affect total revenue (TR) earned. This is because TR is defined as the amount received from the sale of the good at a given price and is calculated as the price multip lied by the quantity. In this context, the impact on TR earned in the markets involv ed due to increasing affluence, advances in modern technology and increasing numbe r of publishing companies producing e- books will be examined. Due to increasing affluence, the income of the people increased. Income elasticity of demand (YED) measures the degree of re sponsiveness of quantity demanded of a good to change in income, ceteris paribus. Since e-book is considered a normal good where YED>0, an increase in income would lead to an increase in demand for e-books. Furthermore, due to advancement in modern technology, faster broadband speed and internet connecti on have changed consumers’ taste and preference in favour of e-books due to the ability to purchase and download any book title with just a few clicks on the e-reading device. In addition, technological improvements have produced a wide array of attractive feat ures and functions of dedicated e-book devices such as Kindle. They are light-weighted, possessed advanced screen technology and provide support for on-screen handwritten notes and highlights. All these benefits meant to cr eate a comfortable and conveni ent reading experience for readers will change consumers’ taste and preference towards e-books and hence lead to an increase in demand for e-books. When demand for e-books in creases, both equilibrium price and quantity will increase, leading to an increase in TR for e-books publishers. Advancement in modern technology has also resulted in the greater ease of creating e-books. Besides having fast er broadband speed and internet connection that helps to increase the efficiency of creating e- books, the discovery o