Two self-evaluation questions
Choose the item you think is correct and click the 'Check response' button.
Even if you have chosen the correct answer, it may be interesting to choose the items that made you doubt to see some additional explanation.
The market for a good was in competitive equilibrium. A university develops a new technique that allows producing the good with less energy expenditure, saving 20% in production costs. The new technology is available to all producers.
In the new equilibrium...
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A 20% cost reduction will shift the supply curve downwards by 20%. Thus, if the price drops by 20%, companies will offer the same amount as before.
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It is true that at the same price firms will offer more, but the quantity demanded would not change, so firms would not be able to sell the new production. Therefore, there would be an excess of supply, and the market would not be in equilibrium.
✅ Perfect !!
On the one hand, firms will offer more at the same price, and to be able to sell the new production the price must drop (so the increase in production is not as large as if the price had not dropped).
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The quantity demanded depends on the selling price, not on the production cost. The demand will increase if the drop in cost causes the sales price to fall.In the figure, you can see the market of the good $q$. Initially, the market was in equilibrium, but then, there has been a general increase in the consumers' income. Place the labels in the corresponding circles.