Question

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information.
Given an increase in input price from $4 to $6, we would expect the aggregate:
a) supply curve to shift to the left.
b) supply curve to shift to the right.
c) demand curve to shift to the left.
d) supply and demand curves to both remain unchanged.

Answer 1

Answer:

A. supply curve shifts to the left

Explanation:

An increase in the prices of inputs from $4 to $6 shows economic problems that include a reduction in capital stock, labor, and an increased unemployment rate. This can also give room for inflation.

This increase shows that due to shortage in labor supply, it now costs more to produce a product.

Due to all the above mentioned reasons, the supply curve of both long run and short run supply curves shifts left.

Cheers.