ing in a decrease in the equilibrium price from P1 to P3 and

ing in a decrease in the equilibrium price from P1 to P3 and a decrease in the equi librium quantity from Q1 to Q3. Thinking Critically 1. Suppose a technological change al- lows firms to lower the cost of produc- ing smart shirts. Explain if this change will affect the demand curve for smart shirts. How would this change affect the market for smartwatches? 2. In 2015, smartwatch producers had dif- ficulty filling the orders they received. Draw a demand and supply graph to illustrate this situation. All else equal, what would you expect to happen in this market if this situation persisted into the future, and how would this affect the market for complementary products like smart shirts?

Solution

As per Chegg-policy, we are supposed to answer the first question only.

1> There will be no change of the demand curve, this is so because there is only change in the production cost, so this can not change the consumer preference.

But, the supply curve will shift to the right, so the price will go down and quantity will go up.