Economics – The allocation of resources - Price changes | e-Consult
The allocation of resources - Price changes (1 questions)
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Answer:
Explanation:
- Technological Innovation & Supply Shift: A technological innovation that reduces the cost of producing mobile phones will increase the supply of mobile phones. This causes the supply curve to shift to the right (S1 to S2).
- New Equilibrium: The rightward shift in the supply curve results in a new equilibrium point where the supply curve (S2) intersects the demand curve (D). This new equilibrium will have a lower equilibrium price (P2) and a higher equilibrium quantity (Q2) compared to the original equilibrium (P1 and Q1).
- Impact on Price and Quantity: The price of mobile phones decreases, and the quantity bought and sold increases. This is because producers are now able to supply more mobile phones at each price level, leading to greater availability and lower prices for consumers.
- Diagram: A diagram should be drawn showing the original supply and demand curves, the rightward shift of the supply curve, and the new equilibrium point. The diagram should clearly label the axes, the curves, and the equilibrium points.