Economics Assignment: Analyzing Music Industry and Demand-Supply

This economics assignment analyzes the impact of illegal music downloading, particularly through platforms like Napster and peer-to-peer technologies, on the recorded music industry. The report explores the ethical and economic implications, focusing on copyright violations and financial losses for artists and the industry. It applies economic concepts such as demand and supply, consumer surplus, and producer surplus to illustrate how free music downloads decrease demand for paid music, leading to lower prices and reduced profitability for suppliers. The analysis includes graphical representations of demand and supply curves, consumer and producer surplus, and statistics on illegal music downloading. The report concludes that while consumers benefit from free access to music, the overall welfare of the music industry suffers due to decreased profits and potential job losses, supporting the argument that illegal music downloading is an unethical practice that should not be supported.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Issue in Consideration................................................................................................................2
Analysis of the situation.............................................................................................................3
Ethical Scenario.....................................................................................................................3
Economic Interpretation of the problem................................................................................3
Position derived..........................................................................................................................6
Critical Evaluation.....................................................................................................................7
References..................................................................................................................................8

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Introduction
The concept of demand and supply is one of the pivotal concepts in the theoretical
and conceptual framework of economics, which plays immensely crucial role in determining
the dynamics of any market, in the aspects of price and demand of different commodities and
services. While the demand side represents the side of the activities of the buyers and the
supply side shows the dynamics and patterns of the sellers (Baumol and Blinder 2015).
The demand and supply conditions in a market and their inter-dynamics play
significant roles in determining not only the dynamics of the market but also the welfare and
profitability of the buyers as well as the sellers. Often these demand and supply dynamics are
affected by several exogenous as well as endogenous factors, which thereby have
implications on the situations in the markets, influencing the outcomes for the different
participants in the economic activities in the markets (Frank and Cartwright 2013).
Keeping this into account the concerned report tries to analyse the impacts of the
phenomenon of illegal sharing and downloading of music, attributed to the invention and
usage of Napster and other peer-to-peer technologies for file-sharing and the impacts on the
profitability, sustainability of industry of recorded music. To analyse the impacts of the same
on the recorded music industry, the assignment uses theoretical components of economics
like that of demand-supply and the notions of consumer and producer surplus.
Issue in Consideration
In the contemporary period, with the increased usage of internet by an increasing
share of global population, there have been significant changes in the consumption as well as
preference pattern of the consumers across the globe, which in turn effects all the industries
in the global scenario and the music industry is not exception. In the current scenario,
especially after the arrival of Napster (1999) and other illegal technologies like Limewire and
Kazaa, the internet savvy population across the globe now have free access to the music files
which are recorded and released and they can illegally download the same from the different
internet P2P sites without paying for the music (Jambon and Smetana 2012). The only cost
for such broad and unlimited downloading of free music is the minimal cost of buying
internet plans, the price of which again decreases with time. This in turn has resulted in huge
loss in the recorded music industry, to combat which streaming of music was brought
forward by Spotify or Apple Music. However, in spite of the increasing popularity of the
same, the problem of illegal downloading of music has still persisted consistently in the

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industry and is thus one of the primary issues of concern among the supply side providers of
the music industry.
Analysis of the situation
The issue of illegal downloading of music is not only an issue of ethical consideration
but also has significant economic significance attached to it:
Ethical Scenario
One of the primary ethical issue in the aspect of illegally downloading music files is
that of the grave issue of copyright violation of the creators of music. Many people earn their
living by creating music and selling the same to audiences. A lot of effort, both intellectual as
well as technical, goes into the creation of a piece of good music and the same obviously is
not created for free. By selling the records, these costs are mitigated and the artists and
technicians earn their livings (Robertson et al. 2012). Downloading this music illegally, thus,
undermines not only the intellectual dignity of these artists and technicians in terms of their
copyright violation, but also leads to immense financial loss of the artists and the recorded
music industry as a whole and thus the phenomena is of ethical consideration.
Economic Interpretation of the problem
The problem of financial loss which is suffered by the recorded music industry with
the advent and increased usage of these peer-to-peer music files sharing technologies for
almost free music downloading (At minimal cost of internet packages) can be explained with
the concept of demand and supply.
In economic sense, the demand for a normal commodity increases with the decrease in the
price and vice versa, which gives the demand curve a negative slope which is as follows:

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Figure 1: Demand curve for normal commodities
(Source: As created by the author)
On the other hand, for normal commodities, with increase in the price of the same the
supply increases and vice versa, which can be shown as follows:
Figure 2: Supply curve for normal commodities
(Source: As created by the author)
Thus, with the increasing scopes of free music downloading, the demand for
comparatively costlier music records decrease, the effects of the same can be seen as follows:

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Figure 3: Decrease in demand for music records
(Source: As created by the author)
Thus, with the fall in demand for music, supply remaining the same, the price of the
music records is bound to fall which in turn decreases the profitability of the suppliers. This
can also be viewed from the aspect of consumer and producer surplus:
Figure 4: Consumer and Producer Surplus
(Source: As created by the author)
In case of the recorded music industry, as the music are sold at a price P greater than
the marginal cost of production (MC), the consumer surplus is only the portion (CS), while
the producer enjoys surplus of amount (PS) and there also occurs a dead-weight loss of

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amount (DWL). However, with the almost free facility of downloading of music, the
consumer surplus increases considerably and as the producers in the recorded music industry
suffers loss of profit, there producer surplus decreases. Thus, it proves to be highly
convenient for consumers but leads to a loss of the welfare of the supply side players of the
industry (Frank and Cartwright 2013).
Position derived
Thus, it can be asserted that free music downloading leads to a fall in the welfare of
the music industry as a whole, as the fall in the profitability also leads to a fall in the number
of employment in this sector.
Figure 5: Percentage of internet users accessing illegal music
(Source: Richter 2018)
As can be seen from the above figure, illegal music downloading exists considerably
in the contemporary periods (Sinclair and Green 2016). This in turn can be seen to decrease
the profit and employment in the music industry as can be seen below:

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Figure 6: Loss of profit and employment in recorded music industry
(Source: Lasar 2018)
Critical Evaluation
With the increase consumer surplus in illegal downloading of music it can be argued
by a number of people that the same can be beneficial for the consumers, however, this may
lead to the loss of economic prospects of the legal recorded music industry, the effects of
which can be huge unemployment and financial loss of artists and technicians. On the other
hand, it decreases the contribution of the industry in the GDP of the countries and also
indirectly supports piracy which is an indicating towards the creation of underground
economy. Thus, illegal music downloading is an unethical phenomenon which should not be
supported.

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References
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Frank, R. and Cartwright, E., 2013. Microeconomics and behaviour. McGraw Hill.
Frank, R. and Cartwright, E., 2013. Microeconomics and behaviour. McGraw Hill.
Jambon, M.M. and Smetana, J.G., 2012. College students' moral evaluations of illegal music
downloading. Journal of Applied Developmental Psychology, 33(1), pp.31-39.
Lasar, M. (2018). Have we lost 41 percent of our musicians? Depends on how you (the
RIAA) count. [online] Ars Technica. Available at:
https://arstechnica.com/tech-policy/2012/10/have-we-lost-41-percent-of-our-musicians-
depends-on-how-you-the-riaa-count/ [Accessed 3 May 2018].
Richter, F. (2018). Infographic: Music Piracy Still Prevalent in the Age of Streaming.
[online] Statista Infographics. Available at: https://www.statista.com/chart/8910/prevalence-
of-music-piracy/ [Accessed 3 May 2018].
Robertson, K., McNeill, L., Green, J. and Roberts, C., 2012. Illegal downloading, ethical
concern, and illegal behavior. Journal of business ethics, 108(2), pp.215-227.
Sinclair, G. and Green, T., 2016. Download or stream? Steal or buy? Developing a typology
of today's music consumer. Journal of Consumer Behaviour, 15(1), pp.3-14.