Chapter 3, Problem 7P

To determine

The flaws in reasoning in the following statements and draw the appropriate graphs.

1. "A technological innovation that lowers the cost 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 the price in the end"
2. "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.

Concept Introduction:

Demand curve: Demand curve is the graphical representation of the demand schedule.

Supply curve: Supply curve is the graphical representation of the supply schedule.

Demand: The demand is defined as the ability to pay for goods and services.

Supply: The supply is the ability of the seller to produce the goods and services and sell it at the prevailing price.

Equilibrium price: The equilibrium price is at which the demand and supply are equal.