Question

If there is a technological advance in the production of a good, what will happen to the equilibrium price?

1) The equilibrium price will increase
2) The equilibrium price will decrease
3) The equilibrium price will remain unchanged
4) Cannot be determined

Answer 1

A technological advance in the production of a good generally leads to an increase in supply, which results in a decrease in the equilibrium price and an increase in the equilibrium quantity, assuming constant demand.

Step-by-step explanation:

When there is a technological advance in the production of a good, it typically leads to a reduction in the costs of production. This reduction in costs would increase supply curves, as firms can produce more at lower costs. The market will adjust to this increase in supply, leading to a decrease in the equilibrium price as the supply curve shifts to the right. As long as the demand remains constant, the lower price will lead to an increase in the quantity demanded, reaching a new equilibrium at a higher quantity and a lower price.