Answer to Question #286675 in Accounting for Rose

Question

Consider the market for two goods that substitutes,such as pens and pencils. If a technological breakthrough reduced the cost of producing pens

a. What would happen to the supply of pens?

b. What would happen to the price of pens and the quantity demanded?

c. What effect would this change in the price of pens have on the market of pencils

Answer 1

a. Due to the reduced costs of producing pens, the supply of pens will increase in the market.

b. Now that there are efficient ways of producing pens, the cost of manufacturing them will reduce. As such, the price of pens in the market will reduce, leading to a rise in the quantity demanded of pens.

c. Since pens are sold at a lower price, more customers will prefer to buy more quantities of pens than pencils. As a result, customers will demand lower quantities of pencils compared to pens.