Question

If income decreases and, at the same time, a new technology is discovered that lowers the cost of producing the good, which of the following will happen?a. The equilibrium quantity will increase. The equilibrium price will increase.b. Cannot tell the change in equilibrium quantity. The equilibrium price will decreasec. The equilibrium quantity will decrease. The equilibrium price will increased. Cannot tell change in equilibrium quantity. Cannot tell the change in equilibrium price

Answer 1

b. Cannot tell the change in equilibrium quantity. The equilibrium price will decrease

Step-by-step explanation:

Two things are going on here

1. Income decreases, that will shift demand inwards. People can buy fewer goods at any given price

2. New technology is discovered, that shifts supply outwards. Costs are reduced so producers can produce more at a given price

The resulting effects are that price will decrease but the result in quantity is undetermined. This can be seen with the two examples attached. In both cases, the shifting of the curves from D0->D1 and S0->S1 results in lower prices. However, in one case the equilibrium quantity goes up and in the other goes up.