H 



Tom Gomez 

 October 6, 1986 

 Page -7- 



Price will decline and quantity will increase. The effect on Montana 

 producers is a decline in producer surplus (Figure 6) . 



FIGURE 6 

 Price 



Quantity/Time 



Producers in the southeast may benefit from this advancement since the 

 price decline may be more than offset by cost reduction. 



These examples have been analyzed upon the tenuous basis that supply 

 and demand curves are linear and that technology shifts supply curves in 

 a pivotal manner. While I would argue that use of these precepts is not 

 beyond question, the current state of knowledge certainly is not contra- 

 dictory and the precepts supportable. However, even if the precepts are 

 discarded, the following conclusions hold: 



(1) Research which shifts supply downward for only a rela- 

 tively small group of producers (such as those in 

 Montana) benefits those producers. In other words, 

 geographical-specific research where the geographical 

 area affected is small relative to the total production 

 area benefits producers in the affected area. 



(2) Early adopters benefit from technical advancements in 

 the short run. Generally those closest to the geo- 

 graphical source of the innovation adopt first. 



The conclusion which is dependent on the type of supply shift is 

 that technological change adoptable by all producers will eventually 

 reduce producer surplus. Such a conclusion depends upon not only the 

 manner in which the supply curve shifts, but the relative slopes of the 

 supply and demand curve. The literature provides substantial support for 

 the demand curve being steeper than supply. However, the further 

 assumption that supply shift is pivotal is more tenuous. As discussed 



