Let us assume that peaches and nectarines are subsitute goods.  What happens to the nectarine industry if technology is introduced that reduces the price of growing peaches, but not that of...

Let us assume that peaches and nectarines are subsitute goods.  What happens to the nectarine industry if technology is introduced that reduces the price of growing peaches, but not that of growing nectarines?

What is the answer for question 51. c)

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Asked on by lkballer24

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In this scenario, the new invention has caused the price of peaches to go down.  We know that changes in the price of a good have a direct relationship with the demand for a substitute good.  What this means is that a decline in the price of (in this case) peaches will cause a decrease in the demand for nectarines.

Let us look at what this means for the nectarine industry.  First, it will mean that prices and quantities for nectarines will drop.  We know this because any drop in the demand for a good (shown graphically by a movement of the demand curve to the left) will result in a lower equilibrium price for that good and a lower quantity supplied and demanded.  Second, it will mean that there will be less demand for workers in the nectarine industry.  With fewer nectarines being produced, there will be less demand for these workers.  As the demand for the workers drops, their numbers will drop and so will their pay.  

Thus, this change in technology will mean that fewer nectarines are produced at a lower price.  In addition, it will mean that fewer people will be hired to work in the nectarine industry and their wages will be lower.

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