Question

What effect does increased input price have on the supply of a commodity? Draw a diagram in support of your answer.

Answer 1

As the cost of production for a firm increases due to a rise in input prices, the supply of the commodity decreases, causing the supply curve to shift to the left.

Answer 2

If the prices of inputs rise, then the cost of production will increase. This will reduce the profit margin of the seller. As a result the supply curve will shift to the left indicating decrease in supply. In the diagram

1. SS is the original supply curve.
2. S₁S₁ is the new supply curve.
3. Leftward shift in supply curve indicates decrease in supply.