Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 4 - Part II - The Market Forces of Supply and Demand - Questions for Review: 6

Answer

Change in technology: When technology improves, production of a product becomes cheaper. Also, it may require lesser labor which further reduces the cost of production. Hence, suppliers will be willing to supply more at slightly lower prices as they can maintain their profitability even ar lower price as their cost of production has been reduced. This willingness to supply more at lower prices results in the rightward shift of the supply curve. Change in Price: Change in Price would change the quantity to be supplied on the same demand curve. If price increases, the quantity supplied would decrease, while if price decreases, the quantity that the supplier will be willing to supply will increase.

Work Step by Step

Consider fig-1 below. It shows how the change in technology affects the supply curve. We, know that with technology becoming better, the supplier is now willing to supply more at the same price. Hence, the supply curve shifted to right and quantity has increased from Q1 to Q2 at the same price P1. Similarly, if the change in the technology increases the cost of production, the supplier now will be willing to supply less at the same price. Hence, quantity will decrease from Q1 to Q3 at the same price P1 and supply curve will shift to the left. In fig-2 it can be observed that when the price is increased from P1 to P2 the supplier is willing to supply more, that is from Q1 to Q2. If the price drops from P1 to P3, then the supplier will supply Q3 instead of Q1.
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