In an Economy with Flexible Prices, Competitive Factor Markets, and Fixed

Essay

In an economy with flexible prices, competitive factor markets, and fixed supplies of the factors of production, graphically illustrate the impact of an advance in technology that greatly improves the productivity of capital, ceteris paribus. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the terminal equilibrium values. Explain in words how the equilibrium values change.