The correct answer is: Rise.
An improvement in technology lowers the cost of producing coffee, which means that the supply curve will shift to the right. At the same time, an increase in consumer preference for coffee means that the demand curve will shift to the right. The equilibrium price of coffee will rise if the rightward shift in the demand curve is greater than the rightward shift in the supply curve. The equilibrium price of coffee will fall if the rightward shift in the supply curve is greater than the rightward shift in the demand curve. The equilibrium price of coffee will remain the same if the rightward shifts in the demand and supply curves are equal.
Here is a diagram that illustrates the effect of an improvement in technology on the equilibrium price of coffee:
[Diagram of a demand and supply curve with the supply curve shifting to the right and the demand curve shifting to the right]
The equilibrium price of coffee will rise from P1 to P2. The equilibrium quantity of coffee will increase from Q1 to Q2.
Here is a brief explanation of each option:
- A. Rise, fall or stay, depending on the relative size of the shifts in the demand and supply curves. This is the correct answer. The equilibrium price of coffee will rise if the rightward shift in the demand curve is greater than the rightward shift in the supply curve. The equilibrium price of coffee will fall if the rightward shift in the supply curve is greater than the rightward shift in the demand curve. The equilibrium price of coffee will remain the same if the rightward shifts in the demand and supply curves are equal.
- B. Remain the same. This is incorrect. The equilibrium price of coffee will not remain the same if there is an improvement in technology. The equilibrium price of coffee will rise, fall, or stay the same depending on the relative size of the shifts in the demand and supply curves.
- C. Fall. This is incorrect. The equilibrium price of coffee will not fall if there is an improvement in technology. The equilibrium price of coffee will rise, fall, or stay the same depending on the relative size of the shifts in the demand and supply curves.
- D. Rise. This is incorrect. The equilibrium price of coffee will not always rise if there is an improvement in technology. The equilibrium price of coffee will rise, fall, or stay the same depending on the relative size of the shifts in the demand and supply curves.