Consider the markets for pizza and fried chicken. Show graphically and explain the impact you would expect if technological change leads to the development of a pizza oven that is both much cheaper and uses less energy than current ovens.
To understand the impact of technological change on the markets for pizza and fried chicken, we need to analyze the effect of the development of a cheaper and more energy-efficient pizza oven. Let's break it down step by step:
1. Supply Side Analysis:
The technological advancement will primarily affect the supply side of the market for pizza. With the introduction of a cheaper and energy-efficient pizza oven, pizza producers will be motivated to adopt this new technology due to cost savings and environmental benefits.
To illustrate this on a graph, we will use a simple supply and demand diagram for pizzas, assuming that the demand for pizzas remains constant:
- Start with the initial supply curve (S1) which represents the existing technology for pizza ovens.
- The technological change will shift the supply curve to the right, denoted by S2, indicating an increase in the quantity of pizzas supplied at each price level.
- The shift occurs because with cheaper and more energy-efficient ovens, producers can reduce their costs of production, leading to greater profitability and an incentive to increase supply.
2. Price and Quantity Changes:
The shift in the supply curve from S1 to S2 will result in several changes in the market:
- Price: The decrease in production costs will lead to a decrease in the price of pizzas. As supply increases, the market will become more competitive, putting downward pressure on prices.
- Quantity: With the increase in supply, the quantity of pizzas produced and sold will also increase. This means that more pizzas will be available to customers, potentially leading to an increase in pizza consumption.
3. Impact on the Fried Chicken Market:
Although the technological change directly affects the pizza market, it can also indirectly impact the market for fried chicken. As the price of pizzas decreases due to the technological advancement, some consumers who previously preferred fried chicken may switch to consuming more pizzas. This change in consumer behavior can result in a decrease in demand for fried chicken.
On a graph for the market of fried chicken, we may observe a slight shift in the demand curve, typically represented by a leftward movement, indicating a decrease in demand. However, the magnitude of this effect depends on several factors, such as the substitutability between pizza and fried chicken, consumer preferences, and the presence of other factors that influence the demand for fried chicken.
In conclusion, the development of a cheaper and more energy-efficient pizza oven is expected to increase the supply of pizzas, leading to lower prices and potentially increased pizza consumption. Additionally, it might have a slight negative impact on the demand for fried chicken if consumers switch their preferences to take advantage of the more affordable and accessible pizza option.