The market is defined as that place where buyers and sellers come together to exchange goods and services for a particular price and quantity.
It consists of both demand and supply. Demand representing consumer behaviour and supply represent firm behaviour.
[Diagram demonstrating equilibrium]
a. Introduction of a new, cost saving technology.
This causes the supply curve to shift down to the right, initially causing a period of disequilibrium, resulting in excess supply. Then over time, this disequilibrium pushes pressure on price to decrease, giving us a new equilibrium.
Overall impact: Decrease price, increase quantity.
[Diagram correctly labelled demonstrating the adjustment process]
b. A decrease in the price of a complementary good. A complementary good is a good that is consumed in conjunction with another good e.g. bread and butter. So to decrease the price of bread should cause the demand for butter to increase. This is demonstrated by a shift in the demand curve up and to the right. This brings the market to a situation of disequilibrium, causing excess demand to exist in the market place. This excess demand is then slowly eroded as price rises to bring the market to a new equilibrium. Overall impact: Increase price, increase quantity