Economics – The allocation of resources - Supply | e-Consult

Answer:

Answer: A technological improvement that reduces production costs will make it cheaper for producers to supply the good. This will cause the supply curve to shift right. This shift will lead to a lower equilibrium price and a higher equilibrium quantity.

Diagram:

The diagram shows the original supply curve. A technological improvement will cause the supply curve to shift right (to S2). The new equilibrium point (E2) will be at a lower price (P2) and a higher quantity (Q2) than the original equilibrium point (E1). The technological improvement makes production more efficient, allowing producers to supply more at each price level.

Explanation: The technological improvement reduces the cost of production, making it more profitable for producers to supply the good. This increased willingness to supply leads to the rightward shift in the supply curve. The market moves to a new equilibrium where the price is lower and the quantity is higher. This is a beneficial outcome for consumers, as they can purchase the good at a lower price and in greater quantities.