Problem
Suppose that innovations in agriculture lower the cost of producing lettuce by 10%. This cost reduction effectively shifts the inverse supply curve downward by 10% at every quantity.
a. Assume that the price of lettuce is determined by the forces of demand and supply. Graph the market for lettuce initially, and then illustrate the effects of the technological innovation.
b. Will lettuce growers be able to capture the cost savings provided by the new technology, or will they end up passing the savings along to consumers? Explain, using your graph.
c. How does your answer depend on the price elasticity of demand for lettuce? Explain, using two graphs to illustrate your point.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.