Price decreases while the effect on quantity is indeterminate. The effect on price is indeterminate while quantity increases. Suppose improvements in technology lead to sharply lower prices for electricity. As the result of the lower electricity prices, the usage of electricity will be unaffected, because price does not influence its usage. According to the invisible hand principle, competitive markets generally bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent.
Price is important in a market economy because it eliminates imbalances between supply and demand.
Sketch a production possibilities curve. Illustrate economic growth. The PPC will shift out with an increase in the quantity of resources an increase in the quality of resources technological improvements 2. Use a supply and demand graph to illustrate and explain the process by which markets adapt to prices that are above the equilibrium level. When the price is above the equilibrium price, the quantity supplied will exceed the quantity demanded.