January 12, 2015 at 1:16 pm #18538
What about the following scenario: Technological innovation (i.e. fracking) causes expansion of production in a factor market. The resulting drop in price of the producers’ good (i.e. oil) causes a.) current gasoline producers to lower their selling price/increase production due to changing cost structure in order to maximize profits under the new market, or, b.) new gasoline producers enter the market due to increased profit expectations and the resulting increase in gasoline production leads to lower prices? Wouldn’t both of these scenarios be plausible and wouldn’t they both be examples of lower factor prices causally leading to lower consumer good prices? Thanks as always for your time.