The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets. FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.If a technological change occurs in the production of widgets that allows for increased production from each factor,then
A)economic rents to the initial 40 units of the factor will decrease.
B)equilibrium will move toward point D and the factor price will rise.
C)total factor earnings will rise and economic rent to the 40th unit will be zero.
D)equilibrium will move toward point C and economic rent to the initial 40 units will increase.
E)total factor earnings will decrease and economic rent to the initial 40 units will increase.

Question

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.  FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.If a technological change occurs in the production of widgets that allows for increased production from each factor,then
A)economic rents to the initial 40 units of the factor will decrease. 
B)equilibrium will move toward point D and the factor price will rise. 
C)total factor earnings will rise and economic rent to the 40th unit will be zero. 
D)equilibrium will move toward point C and economic rent to the initial 40 units will increase. 
E)total factor earnings will decrease and economic rent to the initial 40 units will increase.

Quizplus · Accepted Answer

With a technological change, the production of widgets will increase, leading to an increase in demand for the factor. This will shift the demand curve to the right, leading to an increase in the equilibrium price and quantity. Economic rent to the initial 40 units of the factor will increase because the supply curve is perfectly elastic above point B. Therefore, those initial 40 units will earn the full economic rent of the factor. Equilibrium will move towards point C on the graph.

The Demand and Supply Curves Shown Below Apply to a Competitive