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ESSAY QUESTION: Assume that the following market represents a perfectly competitive market for couches, which is in equilibrium, Initial demand and initial supply curves
are given by DO and SO, respectively. Further assume that a new technology which reduces teh cost of production has now been put into use in manufacturing couches.
Nothing else changes in the economy (ceteris paribus).
Question 17
Under this scenario, what is the
A) initial equilibrium price?
B) initial equilibrium quantity?
C) final equilibrium price?
D) final equilibrium quantity?
E) Briefly justify your answers to parts C and D.
Question 18
What economic principle dictates specialization, and eventually trade?