Answer to Question #24579 in Microeconomics for saad

Question

Silk must be extracted from silkworms. This process in the past was extremely difficult, requiring specialized and expensive machinery, but over time advances in research have produced better techniques. In the market for silk shirts the most likely effect would be:


A. P* up, Q* down


B. P* up, Q* up


C. P* down, Q* down


D. P* down, Q* up


E. A movement to the left along the supply curve.

Answer 1

D. P* down, Q* up
Advances in technology often have the effect of lowering the costs of production, allowing suppliers to supply more goods at all prices. For example, the development of pesticides has reduced the amount of damage done to certain crops and therefore has reduced the cost of farming. The result has been an increase in the supply of these crops at all prices, which can be represented by a shift to the right in the supply curves for these crops