Answer to Question #91165 in Microeconomics for Zain Ul Abdin

Question

How will a simultaneous increase in the price of the substitute good and an improvement in production technology affect market demand and/or supply, equilibrium price and equilibrium quantity in a competitive market?

Answer 1

A simultaneous increase in the price of the substitute good and an improvement in production technology will increase demand in the market. Moreover, the increase in demand will serve as an incentive for suppliers to increase supply. Therefore the increase both demand and supply is equal, there will be a proportionate shift in the supply and demand curve. Consequently, the equilibrium price remains the same. However, the equilibrium quantity rises.