Suppose a technological improvement lowers the cost of producing guava candy. At the same time, preferences for guava candy decrease. The equilibrium quantity of guava candy will:

Question

Quizplus · Accepted Answer

The equilibrium quantity of guava candy could increase, decrease, or remain the same, depending on the relative magnitudes of the shifts in the demand and supply curves. A technological improvement (lowering production costs) would shift the supply curve to the right, potentially increasing the quantity supplied. However, a decrease in preferences for guava candy would shift the demand curve to the left, potentially decreasing the quantity demanded. The net effect on the equilibrium quantity depends on which effect is stronger.

Suppose a Technological Improvement Lowers the Cost of Producing Guava