Econ II - Changes in Market Equilibrium

What happens to market equilibrium when new technology allows suppliers to produce more at lower cost?

Supply increases, shifting the supply curve to the right; equilibrium quantity rises and price falls

What is an example of technological progress in agriculture mentioned in the text?

Synthetic Bovine Growth Hormone (BGH) that increases milk production by 10–20% at little additional cost

How does the introduction of BGH affect consumer surplus?

It increases because the market price falls and consumers buy more milk

How does the introduction of BGH affect producer surplus?

Ambiguous; more milk is sold (increasing surplus), but the lower price reduces surplus on previous sales

What is total surplus in a market?

The sum of consumer surplus and producer surplus

How does a rightward shift in supply curve affect total surplus?

It generally increases total surplus because the shaded area between supply and demand curves becomes larger

What is an externality in the context of technological progress?

Effects of a change in the market that are not immediately obvious or captured by the supply and demand analysis

What happens to the equilibrium price and quantity if demand decreases?

Equilibrium price falls, and equilibrium quantity falls

What is an example of reducing demand through policy?

Public education campaigns and warning labels on cigarettes

How does a leftward shift in demand curve affect consumers?

Consumers buy less and pay a lower price

How does a leftward shift in demand curve affect producers?

Producers sell less and receive a lower price per unit