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Impact of Input Costs on Supply
hard

How does an increase in input costs typically affect the supply curve in a competitive market, considering the relationship between cost of production and price changes?

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Choose the Best Answer

A

The supply curve shifts to the right, increasing supply.

B

The supply curve shifts to the left, decreasing supply.

C

There is no effect on the supply curve.

D

The supply curve becomes vertical, indicating fixed supply.

Understanding the Answer

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Answer

When input costs increase, it becomes more expensive for producers to make their products. This means that they may not be able to supply the same amount of goods at previous prices. As a result, the supply curve shifts to the left, indicating a decrease in supply. For example, if a bakery has to pay more for flour and sugar, it might produce fewer loaves of bread unless it raises the price. This change affects the market because consumers may have to pay higher prices for the same goods.

Detailed Explanation

When input costs go up, it costs more to make products. Other options are incorrect because Some might think higher costs mean more supply; It's a common mistake to think costs don't affect supply.

Key Concepts

cost of production
price changes
market dynamics.
Topic

Impact of Input Costs on Supply

Difficulty

hard level question

Cognitive Level

understand

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