Question

Provide an example of a good for which the price has fallen in result of technological advance. If a technological advance lowers a firm's production costs, why do prices typically fall? Shouldn't the firm maintain the same price and earn economic profit.

Answer 1

Smart phones are one such good where the prices have fallen due to technological advancement. Fast paced processors and free Android user interface from Google reduced the cost of production of smart phones. As more firms began to purchase these key inputs at a low cost, there was a flood of smart phones in the market. This was largely true in markets where Apple iphone was quite an expensive product.
The reason why firms don't maintain same price is because of competition in the market. The firm's market power is limited many factors such as price of substitute goods, consumer income and competitor's prices. To capture an even bigger market share, it becomes even more important to pass on the benefits of lower costs of production to the consumers and earn a bigger profit by selling more volume of the product.