In a competitive market, how does an increase in the cost of a key input (e.g., wages or raw materials) affect the supply curve for a good, holding all else constant?

• A. It shifts the supply curve left (a decrease in supply), so less is supplied at every price.
• B. It shifts the supply curve right (an increase in supply), so more is supplied at every price.
• C. It causes a movement up along the existing supply curve, increasing quantity supplied at each price.
• D. It leaves the supply curve unchanged but increases demand, raising equilibrium quantity.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the supply curve represents the relationship between the price of a good and the quantity supplied by producers, holding all else constant.
2. Step 2: Recognize that an increase in the cost of a key input (like wages or raw materials) raises production costs for firms.
3. Step 3: Since production becomes more expensive, firms are willing to supply less of the good at every price level, because their profit margins shrink.
4. Step 4: This change is represented graphically as a leftward shift of the supply curve, indicating a decrease in supply.
5. Step 5: Note that this is different from a movement along the supply curve, which happens only when the price of the good itself changes; here, the supply curve shifts because of a change in input costs.