Figure: Demand, Supply Shifts Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If technological innovations lower the costs of production, what will happen?

Question

Figure: Demand, Supply Shifts  Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If technological innovations lower the costs of production, what will happen?

Quizplus · Accepted Answer

Technological innovations that lower the costs of production will shift the supply curve to the right from S1 to S3. This will cause equilibrium price to decrease and equilibrium quantity to increase. The demand curve will not be affected, therefore it will remain at D1.