Q. 8

How do the equilibrium price and the quantity of a commodity change when price of input used in its production changes?

Answer :

A change in the price of inputs will directly affect the equilibrium price and quantity of goods.


Increase in input price: An increase in the price of an input, increase the unit cost of production of the commodity. This will cause a decrease in the supply of a commodity and leads to a leftward shift or the supply curve but the demand curve will remain the same as the market price of the commodity will rise.



Decrease in input price: If an input price decreases, then the cost of production will also decrease. This will shift the marginal cost curve rightward, which implies that the supply curve will also shift rightward.



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