Nowadays the increase rate in the world population tends to decrease. When the productivity increases forever, it is possible that there is an excess of supply, as almost all products have diminishing marginal utilities and people only tend consume below certain levels. When there is an excess of supply, the average price level will decrease. However, I do not see this will eventually happen to our world because of the invention and innovation and I think invention and innovation will contribute to supporting the current price levels and even increasing the price levels partially.
We, consumers, only know our preferences about the existing products; however, we do not know the utilities and preferences about the non-existing products. And innovation and invention can create products which have not existed in the market yet. Some of these products may become substitutes for the existing products; however, it is possible that some form entirely new products can be invented. Once an entirely new product is invented, it can create an upward shift of the demand in the whole economy and some productive factors will be redistributed to this new sector and the supply in other sectors will remain at their previous levels without being increased by the improved productivity.
When the supply in other sectors remain at their previous levels, as the supply and the demand do not change, the price level will not change. On the other, when a new market appears in the economy, the supply side usually has the market power in the beginning; therefore, the price level in this sector tends to be higher than if the market becomes more mature.
Therefore, I think innovation and invention can prevent the price level from dropping due to improved productivity and open new markets in the economy which have relatively high price levels.
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