Question

(b)Explain the role of technology in determining the supply.​

Answer 1

A supply curve is an upward sloping function that shows the quantity supplied at any given price.

A change in supply refers to a shift in the supply curve. Factors that can shift a supply curve either to the left or the right are changes in input prices, number of sellers, technology, social concerns and expectations. A movement along the supply curve is a change in quantity supplied because of a change in price.

Effect of Technology on Supply
Shifts in a supply curve are usually the result of advances in technology that reduce the input costs of production.

Technological advances that improve production efficiency will shift a supply curve to the right. The cost of production goes down, and consumers will demand more of the product at lower prices. Computers, televisions and photographic equipment are good examples of the effects of technology on a supply curve.

According to the Bureau of Labor Statistics, the Consumer Price Index for computers declined 96 percent from 1997 to 2015. In the same period, the price index for televisions decreased 94 percent. Electronics manufacturers continue to improve the quality of their products and lower the cost of production.

At lower prices, consumers can purchase more TVs and computers, causing the supply curve to shift to the right. Laptops that cost several thousand dollars a few years ago can now be purchased for a few hundred dollars, and they have more storage and faster processor speeds.

Effect of Technology on Demand
Changes in technology can affect the demand for different products or the demand for related products. It can increase the market for a product by increasing the demand for a new product and making an older product obsolete.

Going back to the example of how technology affected the prices and supplies of computers, consider the emergence of demand for tablets. While technology improved the quality and lowered the prices for laptops, technology also created a market for tablets with equal performance to laptops but at lower prices.

As a result, the demand for laptops was reduced in the face of competition from tablets. In electronics, advances in technology are constantly changing the landscape with the introduction of new products and forced obsolescence of older products. As manufacturers continue their quest to improve productivity and efficiency through technological advances, the demand and supply for products will always be adjusting to consumers' tastes and preferences.