Suppose a technological advancement occurs in the production of a good. What is the most likely effect on the market for that good?

• A. The supply of the good decreases, resulting in a higher equilibrium price.
• B. The demand for the good increases, causing the equilibrium price to rise.
• C. The supply of the good increases, leading to a lower equilibrium price.
• D. The demand for the good decreases, causing the equilibrium price to fall.

Answer: (C)

Verified step by step guidance

1. Understand that a technological advancement in production typically makes it cheaper or more efficient to produce the good, which affects the supply side of the market.
2. Recall that supply is represented by the supply curve, which shows the relationship between price and quantity supplied. An improvement in technology shifts the supply curve to the right, indicating an increase in supply at every price.
3. Recognize that when supply increases (shifts right), the new equilibrium is found where the new supply curve intersects the demand curve.
4. Analyze the effect on equilibrium price and quantity: an increase in supply generally leads to a lower equilibrium price and a higher equilibrium quantity, assuming demand remains constant.
5. Conclude that the correct effect of a technological advancement is an increase in supply, which leads to a decrease in the equilibrium price and an increase in the equilibrium quantity.