Economic growth at constant world prices will --cause the output of one good to fall absolutely.?

Question

Economic growth at constant world prices will ________ cause the output of one good to fall absolutely.

a. always

b. sometimes

c. never

d. most of the times

Answer 1

c. never

Answer 2

b. sometimes

Economic growth changes both the demand and the supply curves so anything is possible.

Under most circumstances, economic growth means more goods are available and incomes are higher so you might expect people to buy more of everything and hence other people to produce more of everything.

But this doesn't work. For example, a family that has adequate nutrition can't really eat all that much more food. What they can do is eat more of some foods and less or others as their income changes. So as incomes rose in Japan, first the consumption of buckwheat went down as the consumption of rice went up, and then the consumption of rice went down while the consumption of wheat went up.

In the West, there was a similar transition from dark bread to white bread, then from bread and starches to meat.

Another issue is why the economy grew. One factor may be the introduction of technology. If a new product is introduced, it might take market share away from a pre-existing product, leading to lower demand for and hence lower production of the pre-existing product even at the same market price.