Question

Suppose that an increase in production costs decreases the supply of wheat, such that less wheat is supplied at each price level. After the decrease in supply, the equilibrium price _____ .

Answer 1

Suppose that an increase in production costs decreases the supply of wheat, such that less wheat is supplied at each price level. After the decrease in supply, the equilibrium price will increase. This is to maintain equilibrium between the supply and demand. When there is a decrease of supply with a constant demand, then the equilibrium price will increase in order to maintain the cycle of money of the economy.