Question

Find the flaws in reasoning in the following statements, paying particular attention to the distinction between shifts of and movements along the supply and demand curves. Draw a diagram to illustrate what actually happens in each situation.a. A technological innovation that lowers the cost of producing a good might seem at first to result in a reduction in the price of the good to consumers. But a fall in price will increase demand for the good,and higher demand will send the price up again. It is not certain, therefore, that an innovation will really reduce price in the end.b. A study shows that eating a clove of garlic a day can help prevent heart disease, causing many consumers to demand more garlic. This increase in demand results in a rise in the price of garlic. Consumers, seeing that the price of garlic has gone up, reduce their demand for garlic. This causes the demand for garlic to decrease and the price of garlic to fall. Therefore, the ultimate effect of the study on the price of garlic is uncertain.

Answer 1

Answer:

As there is a movement  down the demand curve.A decrease in price does increase the quantity demanded and there is an increase in the equilibrium quantity  But it does not lead to an upward movement in demand—a rightward shift of the demand curve—so prices does not increase in this instance

Explanation:

a. This statement makes a flaw attesting to a shift of a curve with a movement along a curve. A technological innovation lowers the cost of producing the good, which makes the producers to offer more goods at lower price. This is shown by a rightward shift of the supply curve from S1 to S2. the equilibrium price drops as a result of this, and the equilibrium quantity rises, as shown by the change from F1 to F2.

The statement "but a fall in price will increase demand for the good, and higher demand will send the price up again" is a flaw in the statement above for the following reasons.

As there is a movement  down the demand curve.A decrease in price does increase the quantity demanded and there is an increase in the equilibrium quantity  But it does not lead to an upward movement in demand—a rightward shift of the demand curve—so prices does not increase in this instance.