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 _____ . increases decreases stays the same

Answer 1

Answer

Increases

Explanation

When an increase in the production cost is experienced, there are high chances that the supply will be affected significantly. With increased costs, in this scenario, less wheat is supplied, rending the wheat supply curve to shift inwards. An inward shift of the wheat supply curve will result in decreased supply and since less supply has to met more demand, so price will rise, thus an increased equilibrium price is attained.