Consider a market in which bakeries supply bread to the restaurant trade. A new technology becomes available to the bakeries, shifting the supply curve as shown in the figure. 4.5 4.0 Original supply (MC) 3.5 .... . 3.0 2.5 Price (E) Excess supply 2.0 B New supply (MC) 1.5 Economic rent 1.0 0.5 Demand 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Quantity of loaves 1. Explain why the bakeries would want to increase sales. Why can they not do so at the original price? 2. Describe how the actions of bakeries could adjust the industry to a new equilibrium. 3. Is it always the seller who benefits from the economic rents that arise when the market is in disequilibrium? 4. What action might restaurants take while the market is not in equilibrium? EXERCISE 11.2 COTTON PRICES AND THE AMERICAN CIVIL WAR Read the introduction to Unit 8 and the 'Great Economist' box about Friedrich Hayek in this unit. Use the supply-and-demand model to represent: 1. The increase in the price of US raw cotton (show the market for US raw cotton, a market with many producers and buyers). 2. The increase in the price of Indian cotton (show the market for Indian raw cotton, a