Question

Your business depends a lot on gas to transport your goods to stores. The price of oil decreases. This will most likely cause the price of your product to _____.
increase ,
decrease,
stay the same

Answer 1

The correct answer is "decrease".

Gas (oil) is considered a necessary input in the business, as it is required for the production process. Its price would be taken into account as a production cost.

One of the factors that affects the supply of a good or service is the price of the inputs used during the manufacturing process. The higher the price of inputs, the higher the costs of production, and the higher the price that the firm needs to set in order to gain an acceptable profit margin per unit sold.

On the other hand, the relationship between the price of inputs and the price of the products also works in the opposite direction. If the costs of the factors of production decrease, the firm can become more competitive in the markets by establishing a lower price for the product while it can continue earning the same, or even a larger, profit margin. Therefore, the price of the product will decrease if so do the prices of inputs.

Answer 2

Answer:

Your business depends a lot on gas to transport your goods to stores. The price of oil decreases. This will most likely cause the price of your product to decrease .

Explanation:

If your business depends on gas to carry the goods, it means that gas is a production cost of your business.

Production costs are those related to the production process, which can be divided into indirect costs, direct material and direct labor, ie all items that are mandatory in the production process.

Production costs are an important factor in determining the price of the product or service that your business offers. So if a cost of production decreases, you will spend less to produce your product and with that the price of the product or service may decrease.  In this case, if the price of oil has decreased, the price of gas, which is a cost of production, also decreased, so the price of the product should also decrease, since it is spending less to produce.