Question

If the price elasticity of demand is such that a 3% rise in prices leads to a 1% decrease in quantity demanded while the price elasticity of supply is such that a 3% rise in prices leads to a 5% increase in quantity supplied, then which of the following will be a consequence if a key input cost rises? Select the correct answer below: Producers face greater costs than consumers from production savings. Increases in key input costs are more detrimental to producers than consumers. Increases in production costs must be absorbed by producers. Increases in production costs can largely be passed along to consumers.

Answer 1

Answer:

Increases in production costs can largely be passed along to consumers.

Explanation:

Q: Which of the following will be a consequence if a key input cost rises?

The price rise increase the quantity supplied, because most of the production cost are passed to consumers therefore, the gain for the suppliers is not affected.If the price raise couldn't be passed the supply should fall which, is not the case.

The consumers demand is quite inelastic and it cannot response to this price raise.