recently, cellular telephones have become very popular. At the same time new technology has made them less expensive to produce. by assuming the technological advance caused cost curves to shift downward at the same time that demand was shifting to the right. draw a diagram or diagrams to show what will happen in the short and in the long run.
To illustrate the impact of the technological advance on the cost and demand of cellular telephones, we can use a simple supply and demand diagram. Please note that the diagram will represent a hypothetical scenario assuming the technological advance causes cost curves to shift downward, and demand to shift rightward.
1. Short Run:
In the short run, we assume that only the supply side is affected by the technological advance. This means that the demand curve remains the same, and only the supply curve shifts due to reduced production costs.
Here is a diagram to illustrate this scenario:
```
Price (P)
^
|
S1/ \
| \
| \
| \ P1
| \
|___________\ D
Q1
```
In the initial equilibrium, the supply curve (S1) intersects the demand curve (D) at price P1 and quantity Q1. As a result of the technological advance reducing production costs, the supply curve shifts downward to S2. This shift leads to a decrease in the price of cellular telephones and an increase in the quantity demanded to Q2.
2. Long Run:
In the long run, we assume that both the supply and demand side are affected by the technological advance. This means that both the supply curve and the demand curve shift due to changes in production costs and increased popularity.
Here is a diagram to illustrate this scenario:
```
Price (P)
^
|
S1/ \
| \
| \
| \ P1 S2
| \ / /
|__________\/_______/ D1
Q1 Q3
```
In the initial equilibrium, the supply curve (S1) intersects the demand curve (D1) at price P1 and quantity Q1. However, as the technological advance makes cellular telephones less expensive to produce, it also increases their popularity. This leads to a rightward shift in the demand curve to D2. Simultaneously, the reduced production costs result in a downward shift in the supply curve to S2. The new equilibrium is reached at price P2 and a higher quantity Q3.
In summary, the combination of reduced production costs and increased popularity due to the technological advance leads to a decrease in price and an increase in the quantity of cellular telephones in both the short and long run.