An increase in input prices will result in which of the following?

• A. A decrease in the supply of the final good
• B. A decrease in the equilibrium price of the final good
• C. No change in the supply curve of the final good
• D. An increase in the demand for the final good

Answer: (A)

Verified step by step guidance

1. Understand the relationship between input prices and supply: When the prices of inputs (factors of production) increase, the cost of producing the final good rises.
2. Recall the law of supply: As production costs increase, producers are less willing or able to supply the same quantity at each price, causing the supply curve to shift.
3. Determine the direction of the supply curve shift: An increase in input prices shifts the supply curve to the left, indicating a decrease in supply at every price level.
4. Analyze the effect on equilibrium price and quantity: With supply decreasing and demand remaining constant, the equilibrium price tends to rise, and the equilibrium quantity tends to fall.
5. Evaluate the demand side: Since the problem states an increase in input prices, this does not directly affect demand, so the demand curve remains unchanged.