The market for a good is in equilibrium. Explain, using a diagram, how an improvement in technology for producing the good would affect the equilibrium price and equilibrium quantity, keeping other factors constant.

As there is improvement in technology, supply of the commodity will increase as a result. This leads to a rightward shift in the supply curve. Due to increase in supply and constant demand, the equilibrium price will decrease and the equilibrium quantity will increase.

In the given diagram, D and S are respectively initial demand and supply curves. ‘E’ is the initial equilibrium point where equilibrium price is OP and equilibrium quantity is OQ. As the input improvement in technology supply curve shifts rightwards (due to increase in supply) and becomes S1. Due to that equilibrium point shifts to E1 and equilibrium price falls to OP1 and equilibrium quantity rises to OQ1.