Question

1. The two favorite juice drinks in the Alpha economy are reffberry and fruitbru. Consumers enjoy both drinks but some have a slight preference for reffberry while others have a slight preference for fruitbru. The makers of reffberry have invested in new technology that increases their productivity. This technology is not yet adaptable for the production of fruitbru. Use a supply and demand graph to illustrate the impact of the new technology on the reffberry   and fruitbru market.

Answer 1

As a result of investment in new technology by the makers of reffberry, the productivity has been increased.. As the productivity increases, there is higher amount of output with the same level of input.. Thus the supply of reffberry increases.. Due to increased supply of reffberry, the price and the profits of reffberry makers would increase.. As the price of reffberry reduces, customers would switch from fruitbru to reffberry juice and thus the revenue and profits of reffberry increases. This would in turn reduce the number of customers and revenue of fruitbru reduces.

As the supply of reffberry increases from Q to Q', the supply curve shifts rightwards.. Thus the price of reffberry reduces from P to P'.