Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The supply curve shifts to the right, indicating an increase in supply.
B
The supply curve shifts to the left, indicating a decrease in supply.
C
The supply curve remains unchanged, as production costs do not affect supply.
D
The supply curve becomes vertical, reflecting a fixed supply regardless of costs.
Understanding the Answer
Let's break down why this is correct
Answer
When production costs rise, each firm in a competitive market finds it more expensive to make the same quantity of goods, so it is willing to supply less at every price level. This reduces the overall quantity supplied and causes the supply curve to shift leftward (or upward). The shift means that at each price, the market can provide fewer units than before. For example, if the cost of wheat goes up, farmers will grow less wheat, so the wheat supply curve moves left. Thus, higher costs shrink supply, raising equilibrium prices and lowering equilibrium quantity.
Detailed Explanation
When it costs more to make a product, producers are less willing to sell the same amount. Other options are incorrect because Some think higher costs mean more supply, but actually higher costs make production harder; It is easy to think costs don’t change supply, but costs directly influence how much producers can afford to make.
Key Concepts
production costs
competitive market dynamics
Topic
Shifts in Supply Curve
Difficulty
medium level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1If the demand for a product is elastic and the supply curve shifts to the left due to increased production costs, what is the likely outcome for the equilibrium price and quantity?
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2
Question 2In a perfectly competitive market, how does an increase in consumer income affect the equilibrium price and market efficiency when the demand curve shifts to the right?
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3
Question 3In a perfectly competitive market, how does a decrease in production costs affect the supply curve and the resulting producer surplus, considering market efficiency?
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4
Question 4How does an increase in consumer income typically affect the demand curve for normal goods, and what is the underlying reason for this shift?
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5
Question 5If an increase in the cost of production leads suppliers to offer less at every price level, how will this affect the market equilibrium price and quantity?
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6
Question 6How does government regulation, such as the imposition of stricter environmental standards, affect the supply curve for manufacturers in a market, and what impact does this have on market equilibrium?
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7
Question 7In a competitive market, if there is a significant improvement in technology that allows producers to create goods at a lower cost, how is the supply curve affected, and what is the expected impact on consumer prices?
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8
Question 8If the demand for a product increases while supply remains constant, what is likely to happen to the market equilibrium price?
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