Impact of New Technology on the Market Equilibrium

MARKET EQUILIBRIUM MARKET EQUILIBRIUM 9 9 MARKET EQUILIBRIUM Market Equilibrium Name of the Student Name of the University Author Note Executive Summary The paper is aimed at analyzing the impact of new technology on the market equilibrium. Introduction 3 Discussion 3 Supply and Demand Curve 3 Production Possibility Frontier (PPF) 8 Circular Flow of Income 9 Conclusion 10 Reference List 10 Introduction Market equilibrium refers to the equivalent condition between market supply and market demand.

Running head: MARKET EQUILIBRIUM
Market Equilibrium
Name of the Student
Name of the University
Author Note

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Executive Summary
The paper is aimed at analyzing the impact of new technology on the market equilibrium. The
changes of the macroeconomic and microeconomic parameters indicate the direction of the
market equilibrium changes following the technical invention. The detailed impacts have been
discussed in this paper with the help of diagrammatic representation. Finally, the paper
concludes that technology can stimulate the average income of the economy.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Supply and Demand Curve........................................................................................................3
Production Possibility Frontier (PPF)......................................................................................8
Circular Flow of Income............................................................................................................9
Conclusion.....................................................................................................................................10
Reference List................................................................................................................................10

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Introduction
Market equilibrium refers to the equivalent condition between market supply and market
demand. Equilibrium point establishes connection between the factors of demand and supply. It
defines the stability of the market. Meanwhile, the introduction of technology leads to the
improvement of the production of the market. In this regard, market equilibrium is expected to
get changed due to implementation of new technology. Several economic theories have notices
that technology innovation brings significant impact on the Production Possibility Frontier (PPF)
and circular flow of income. Present study attains to evaluate the impact of technology on
demand, supply, PPF and income for an economy (Nascimento et al., 2019). Further, the study
incorporates relevant examples to analyse the importance of the market equilibrium condition in
the economy. According to the economists, the market will never divert from the equilibrium
point if it reaches the market equilibrium condition. It has been observed that every market
definitely achieves the equilibrium condition even after experiencing with sudden market
fluctuation.
Discussion
Equilibrium of the product market can bring impact on microeconomic or
macroeconomic factors. The discussion of the paper emphasises on the microeconomic factors,
including, demand and supply, and production frontier (Balaman et al., 2018). On the contrary,
macroeconomic analysis includes circular flow of income. Companies or economies usually
introduce new technology with the aim of improving the growth.

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S1
D1 Quantity
Price
Q1 Q2
P1
P2 E1 E2
D2
Supply and Demand Curve
Demand and supply curve represent the graphical association between quantity and price.
The cumulative action of both supply and demand curve determines the optimal price.
Technology can completely eliminate the product demand due to the effective substitute goods
developed by technology. On the contrary, the supply of a particular commodity can be omitted
from the market if supplier does not incorporate the new technology into the production system.
Changes in demand curve: Implementation of new technology augments the product demand,
whereas, the old technology brings downsize impact on the product demand. Impact of demand
changes on equilibrium point as follows:
Figure 1: Upward movement in equilibrium owing to rise in demand
Source: (as created by the author)

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S1
D2 Quantity
Price
Q2 Q1
P2
P1 E2 E1
D1
According to figure 1, the market experiences improving demand owing to the innovation
of new technology. People innovates technology to improve the quality of product and services.
The features of new technology get selected on the basis of the market demand. Suppose new
technology has influenced the demand for a particular product (Tronchin, Manfren & Nastasi,
2018). This inevitably raises the product price from P1 to P2 as supply remains constant. As a
cumulative impact of these microeconomic factors, price and quantity, market equilibrium hikes
from E1 to E2. For example, demand for smart fridge demand has showed strong progress as per
the Consumer Electronics Show. The growing environment concern is considered as the
fundamental pillar of the success of this smart electronic equipment (Soderbery, 2015). Modern
electronic developers are focused on the environment-friendly electronic products. This kind of
product are expected to emit less carbon to the environment. Henceforth, smart fridge will be
facing upward demand and that will lead to the increasing product price.
Figure 2: Downward movement in equilibrium owing to fall in demand

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Source: (as created by the author)
Figure 2 illustrates that technology may reduce the product demand from D1 to D2 with
fall in price from P1 to P2. The market face falling demand if technology does not enhance the
product quality (Shuja et al., 2016). Consumer will no longer purchase goods and services and
therefore quantity moves from Q1 to Q2. Regarding this fact, closure of the radio production can
be mentioned in this section. In recent days, radio is available in the mobile and people do not
need to purchase another electronic gadget, like, radio. If supply is taken constant, market
equilibrium will fall from E2 to E1 in response to the decreasing demand (Xin-gang & You,
2018).
Changes in supply curve: Technology innovation may impact on market supply in two ways.
Supplied output can be improved or deteriorated following the inclusion of technology.
Meanwhile, the producers need to be aware of the type of the technology which would bring
optimum outcome for the company or market. In this context, following two different cases have
been mentioned.

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S1
S2
D1
Quantity
Price
Q1 Q2
P1
P2
E1
E2
Figure 3: Downward movement in equilibrium due to supply increase
Source: (as created by the author)
Figure 3 denotes that new technology leads to the improvement of the supplied amount
while market demand remains constant at D1. This implies a downward shift of the supply curve
from S1 to S2. Along this movement, market price starts declining from P1 to P2. This further
enhances the consumer demand from Q1 to Q2 in response to the fall in market price. Altogether
it lowers the market equilibrium from E1 to E2. Therefore, it can be implied that new technology
results in the deterioration of the market equilibrium (Ferreira, Lee & Simchi-Levi, 2016). For
instance, the evolving number of online retail platforms is the perfect example of technology
driven supply. Online selling platforms offer enormous opportunity to the sellers, which in turn,
intensifies the market supply. Overall advanced quantity supply moves the market equilibrium
towards downward movement. As the consumer demand remains unchanged, the excess supply
downsizes the market price.

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S2
S1
D1
Quantity
Price
Q2 Q1
P2
P1
E2
E1
Figure 4: Upward movement of market equilibrium due to supply reduction
Source: (as created by the author)
Figure 4 explains that supply gets declined if the producers are not willing to use the new
production technology. Experts invent technology owing to increase the production amount. In
this regard, inclusion of technology will obviously augment the market production (Robinson et
al., 2014). As a consequence of that supply gets enhanced, whereas, rejection to the technology
innovation cuts down the supply from S1 to S2, keeping the aggregate demand constant at D1.
Referring to figure 2, it can be said that decreasing supply lowers the equilibrium point from E1
to E2 as a combined impact of deteriorating quantity and raising price level.
Market supply is deeply associated with demand and availability of local resources.
Digital transformation has pushed the e-commerce into the mainstream shopping goal (Mathias
et al., 2016). On the contrary, the revenue of the offline retailors face negative impact as they
cannot reach the mass level of consumers like the online sellers. This lowers the demand for their

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products. However, the price keeps on rising. Monopoly firm generally controls the product as to
hike the product price.

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Product X
Product Y
PPF2
PPF1
Production Possibility Frontier (PPF)
Figure 5: Upward shift in PPF due to new technology
Source: (as created by the author)
PPF curve illustrates the efficient outcomes of the joint product (product X and Y in
figure 6) of an economy with respect to certain production function. The different production
level can be measured along with different point of PPF. According to the economic theory, PPF
curve will moves towards upward direction from PPF1 to PPF2 following the output
advancement driven b technology innovation. The insight view of PPF analysis highlights the
optimum production capability of the producers (Deetman et al., 2018). In this regard, the
environmental regulation and interdisciplinary economic model are reported to improve PPF in
the economy. The joint effort of regulation and laws assures the consumption of the economic
resources to the optimum level. The increasing PPF curve denotes to the higher return of skill of
the production fuction.

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Circular Flow of Income
Figure 6: Circular flow of income
Source: (Mathias et al., 2016)
Circular flow of income exhibits the exchange of the resources between the firms and
households. The products and services in terms of kind and cash get exchanged along this
circular flow. Suppose economic resources interchange between firms and household. Firms
recruit householders in exchange of wage as a factor payment (Nyholm & Steen, 2014). On the
other hand, households purchase final products in exchange of product price. In this way, both
factor payments and factor services interchange between households and firms. Contextually,
new technology advances the production of firms and supply of products. More people get
employed as to meet the growing production.

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The high per capita income of the technology advanced countries, like, the USA and
Germany can be refereed as the standard example of the technology impacts on circular flow of
income (Kwark, Chen & Raghunathan, 2014). Introduction of new technology requires skilled
labours who are paid for higher wages. This development of the factor payments returns to
increased expenditure on goods and services in the market. Considering the fact, the country
having higher GDP growth exhibits strong commend on technology.
Conclusion
On a concluding note, it can be stated that technology advancement brings effective
outcome on both microeconomic and macroeconomic factors. Meanwhile, it needs to be
mentioned that consequences of the new technology can be judged in term of positive and
negative aspects. The positive aspects denote to the improvement of demand and supply curve,
whereas, the negative aspects refer to the elimination of the product and loss of jobs. Moreover,
technology advanced countries have been reported to have higher per capita income as a
consequence of greater factor payment and improved product quality.

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Reference List
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technology management for waste to energy production: An integrated optimization
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Deetman, S., Pauliuk, S., Van Vuuren, D. P., Van Der Voet, E., & Tukker, A. (2018). Scenarios
for demand growth of metals in electricity generation technologies, cars, and electronic
appliances. Environmental science & technology, 52(8), 4950-4959.
Ferreira, K. J., Lee, B. H. A., & Simchi-Levi, D. (2016). Analytics for an online retailer: Demand
forecasting and price optimization. Manufacturing & Service Operations
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Mathias, J., Kaddah, R., Buic, A., & Meyn, S. (2016). Smart fridge/dumb grid? demand dispatch
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