supply curve decreases and shifts to the left.

7. With a technological improvement that brings about a reduction in costs of production, an adjustment

process will take place in the market. The technological improvement will result in an increase in supply
curves, by individual firms and at the market level. The existing firms will experience higher profits for a

while, which will attract other firms into the market. This entry process will stop whenever the market

supply increases enough (both by existing and new firms) so profits are driven back to zero.

8. When wages increase, costs of production increase. Some firms would now be making economic losses

and would shut down. The supply curve then starts shifting to the left, pushing the market price up. This

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process ends when all firms remaining in the market earn zero economic profits. The result is a

contraction in the output produced in the market.
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