Solution : When price of inputs increase, assuming no change in other factors, then the cost of production rises. As a result, supply decreases due to fall in the profitability level. It will lead to excess demand. This leads to competition among buyers, which raises the price. Increase in price leads to rise in supply and fall in demand. These changes continue till supply and demand become equal at a new equilibrium price. As there is a decrease in supply only, equilibrium quantity will fall, but equilibrium price will rise. Show What happens when price of input increase?If the price of inputs goes up, the cost of producing the good increases. And therefore at each price producers need to sell their good for more money. So an increase in the price of inputs leads to a decrease in supply.
What are the effects on the equilibrium price and equilibrium quantity when there is an increase decrease in demand or supply?A decrease in demand will cause the equilibrium price to fall; quantity supplied will decrease. An increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity demanded will increase. A decrease in supply will cause the equilibrium price to rise; quantity demanded will decrease.
What is the impact on equilibrium price and quantity if an increase in the price of a complementary commodity?If market is in equilibrium and market demand as well as market supply for a commodity increase in the same proportion the price remains stable, there is no change in the equilibrium price but the equilibrium quantity will increase.
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What is the effect on equilibrium price and quantity when there is an increase in the price of inputs?
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