Reply To: Demand shift

#18445
jmherbener
Participant

Assuming a constant money relationship, the price of good #2 would be lower in the long run only if its cost structure fell sufficiently so that production increased its stock relative to the original increase in demand. However unlikely, this might happen if, for example, the extra profit from the original increase in demand for good #2 was used to finance capital investment in a technological breakthrough in producing good #2. Likewise, the price of good #1 would be higher in the long run only if its cost structure rose sufficiently so that production decreased its stock relative to the original decrease in demand.