If the prices of inputs change, what will happen to the aggregate supply curve?
A)The aggregate supply curve does not move, but the economy moves along the curve.
B)The aggregate supply curve depends on whether the input prices rise or fall.
C)The curve will become flatter or steeper depending on whether the input prices rise or fall.
D)The aggregate supply curve shifts inward or outward depending on whether the input prices rise or fall.

Question

Quizplus · Accepted Answer

If input prices rise, the cost of production for firms will increase, leading to a decrease in profits and a decrease in the willingness of firms to produce goods and services at any given price level. This results in a shift inward of the aggregate supply curve. Similarly, if input prices fall, the costs of production decrease, leading to an increase in profits and an increase in the willingness of firms to produce goods and services at any given price level. This results in a shift outward of the aggregate supply curve.

If the Prices of Inputs Change, What Will Happen to the Aggregate