Use demand and supply curves to show how equilibrium is restored after the supply curve is...

Use demand and supply curves to show how equilibrium is restored after the supply curve is affected by an improvement in technology that increases productivity.

Expert Solution

ANSWER-

The equilibrium is set at point where demand is equal to the supply. The price at which demand is eqaul to supply is the equilibirum and the quantity at this point is equilibrium quantity.

This equilibirum price and quantity changes when there is change in any other factor other than price it causes a shift in either the demand curve or the supply curve.

When there will be an improvemnet in technology that increases productivity than it will increase the supply of the product and when supply increases the supply curve shifts to right (shifts forward) and when supply curve shifts to left the new equilibrium is set at a lower point from previous equilibrium and the equilibrium price falls and equilibrium quantity increases. This is shown in below image uploaded-

Before improvemnet in technology the equilibrium is at point a and equilibrium price is P and the equilibrium quantity is Q. After the improvement in technology the supply curve shifts from SS to S1S1 and new equilibrium is set at point b where equilibrium price falls from P to P1 andequilibrim quantity rises from Q to Q1.

Rahul Sunny answered 2 years ago

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