Businesses and industries are affected by technological developments. It is, however, impossible to quantify these impacts without making assumptions about the future. These assumptions should be evaluated using scenario and sensitivity analysis to develop a range of earnings outcomes.

Technological developments can affect demand for a product, the quantity supplied of a product, or both. When a technological development results in a new product that threatens to cannibalize demand for an existing product, a unit forecast for the new product combined with an expected cannibalization factor can be used to estimate the impact on a future demand for the existing product.

It's equally noteworthy that technological developments can affect the demand and supply of a product. The supply curve will move to the right if innovation results in lower manufacturing costs. Suppose innovation results in the development of better, more attractive products, demand for existing products will shift to the left.

Practice Question 1

Technological developments can shift supply curve to the _____, and/or demand curve to the ______.

A. left, right.
B. right, left.
C. right, right.

Correct Answer: B

Technological developments should result in more products supplied/consumed at the same or lower price.

Practice Question 2

Which of the following factors would most likely be used to evaluate the impact of new products on existing products' demand?

A. Cannibalization factor
B. Sensitivity analysis
C. Scenario analysis

Correct Answer: A

The cannibalization factor is used to evaluate the impact of a new product on the future demand for an existing product. It quantifies a new product's impact on an existing product's sales.