Consider a market in which bakeries supply bread to the restaurant trade. A new technology becomes available to the bakeries, shifting the supply curve down as shown in the figure.... Consider a market in which bakeries supply bread to the restaurant trade. A new technology becomes available to the bakeries, shifting the supply curve down as shown in the figure. Which of the following statements is correct? * Outcome A is Pareto efficient before and after the supply curve shift. * Bakeries initially earn disequilibrium economic rents even if they keep the price and the output unchanged. * Initially there is an excess demand for bread. * Bakeries initially earn disequilibrium economic rents by selling more loaves at €2. Read more

Understand the Problem

The question describes a market scenario where bakeries supply bread to restaurants. A new technology shifts the supply curve downwards. The image shows the original supply, new supply, and demand curves. The question requires you to determine which of the given statements about the market is correct based on the provided information and graph.

More Information

Disequilibrium economic rent arises when there is a shift in either the demand or supply curve, leading to a temporary mismatch between quantity supplied and quantity demanded at the prevailing market price.

Tips

A common mistake is to confuse economic rent with other concepts like consumer or producer surplus. Remember that economic rent specifically refers to payments to factors of production above their reservation price due to market disequilibrium.

Sources

• 8.6 Changes in supply and demand – Microeconomics - CORE Econ - core-econ.org