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Chapter 4: Q. 4.16 (page 94)

Consider Figure 4-1.The current demand and

supply curves are D鈧� and S鈧�,at which the equilib

rium price and quantity areP,and Q鈧�.If firms

adopt an improved technique for producing this

good,which curve shifts,and in which direction

does it shift?What happens to the market clearing

price and to the equilibrium quantity?

Short Answer

Expert verified

Supply shifts right.

Step by step solution

01

Step1. Given information

Improvisation and development in the techniques of production

02

Step2. Explanation

As the techniques of production has developed, the cost incurred in producing goods will reduce. This means at same price, I can now produce and supply more goods. Hence, supply shifts rightwards.

This will reduce the price due to excess supply, and hence the equilibrium quantity shall increase too.

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Most popular questions from this chapter

In recent years, technological improvements have greatly reduced the costs of producing basic cell phones, and a number of new firms have entered the cell phone industry. At the same time, prices of substitutes for cell phones, such as smartphones and some tablet devices, have declined considerably. Construct a supply and demand diagram of the market for cell phones. Illustrate the impacts of these developments, and evaluate the effects on the market price and equilibrium quantity.

Other things being equal, is the price of milk in Europe likely to rise or fall in response to the elimination of milk production quotas? Explain your answer.

Why do you think that economists seek to study prices measured in terms of dollars per unit as measured, say, by weight or by volume rather than by prices per package or per container? Explain your reasoning.

Consider Figure 4-1.The current demand and

supply curves areD,and S鈧�,at which the equilib

rium price and quantity are P鈧� and Q鈧�.If there isa

decrease in the price of an item that consumers

regard asasubstitute for this good,which curve

shifts,and in which direction does it shift?What

happens to the market clearing price and to the

equilibrium quantity?

Consider the diagram below,which depicts the labor

market inacity that has adopteda"living wage law"

requiring employers to payaminimum wage rate of

\(11 per hour.Answer the questions that follow.

a.What condition exists in this city's labor market

at the present minimum wage of\)11 per hour?

How many people are unemployed at this wage?

b.Acity councilwoman has proposed amending

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c.Acouncilman has offeredacounterproposal.In

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