Suppose now that the invention of a better mechanical lettuce picker reduces costs. Producers are now willing to supply and quantity of lettuce for $9 less per crate than previously. What will happen to the equilibrium price of lettuce? Will it fall by th efull $9 amount? Explain why or why not by drawing in new suppply and/or demand curve(s) as needed. Label the new curve or curves and the new equilibrium with a subscript 2.
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To understand what will happen to the equilibrium price of lettuce due to the invention of a better mechanical picker, let's break it down step by step.
First, suppose that the previous equilibrium price of lettuce was P1 and the quantity supplied and demanded was Q1. The market was in equilibrium where the supply and demand curves intersected.
Now, with the invention of a better mechanical lettuce picker, the producers' costs are reduced, making them willing to supply and quantity of lettuce for $9 less per crate than previously. This implies that the supply curve will shift to the right, reflecting the increase in supply at each price level.
To represent this shift in the supply curve, we label the new supply curve as S2. The new supply curve S2 will be parallel to the original supply curve S1 but shifted to the right by the amount of $9. So, the new supply curve S2 can be drawn above the old supply curve S1.
Next, we need to analyze the impact of this change in supply on the equilibrium price and quantity of lettuce. Since the supply curve has shifted to the right, there will be an excess supply of lettuce at the initial equilibrium price P1. Producers are willing to supply more lettuce at a lower price, leading to a downward pressure on price.
As the price falls, consumers will be willing to purchase more lettuce, increasing the quantity demanded. This movement along the demand curve is represented by a movement to the right, as consumers respond to the lower price.
This adjustment process will continue until a new equilibrium is reached, where the new supply and demand curves intersect. Let's call this new equilibrium price P2 and the corresponding quantity Q2.
However, it's important to note that the equilibrium price will not fall by the full $9 amount. This is because the reduction in production costs for producers does not directly translate to a reduction in price for consumers.
Instead, the equilibrium price will fall but by a lesser amount than $9. The exact magnitude of price decrease will depend on the elasticity of demand and supply, as well as other market factors. It's possible that the equilibrium price falls by less than $9, indicating that consumers may share part of the benefit of the cost reduction.
In summary, the equilibrium price of lettuce will fall due to the invention of a better mechanical picker. However, it will not fall by the full $9 amount. The new equilibrium price will depend on the specific shifts in supply and demand as well as the resulting adjustments in quantity demanded and supplied.