A paper mill discovers that burning old tires is a far cheaper way to get power than using coal, and they quickly adopts the new technology

Economics Dec 08, 2020

A paper mill discovers that burning old tires is a far cheaper way to get power than using coal, and they quickly adopts the new technology. We can assume which of the following will happen in the market for paper?

A. The demand for paper will increase.

B. The supply of paper will increase.

C. The demand for paper will decrease.

D. The supply of paper will decrease.

Expert Solution

B. The supply of paper will increase

Reason: Since the producer of the paper mill discovers a new method to derive power which is cheaper than the earlier method, it will tend to reduce the cost of production of paper. When the cost of paper production reduces, the producers will be able to supply more quantities of paper at various price levels. This will tend to increase the supply of paper in the economy, as a result of which the supply of paper will tend to shift to the right.

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