$\begin{array} { | c | c | }
\hline Input ~Quantity & Real ~Domestic ~Output \
\hline 100 & 200 \
\hline 150 & 300 \
\hline 200 & 400 \
\hline
\end{array}$
The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. Suppose that the price of each input increased from $\$ 5$ to $\$ 8$. The per-unit cost of production in the economy would
A) rise by $1.50, and the aggregate supply curve would shift to the right.
B) rise by 60 percent, and the aggregate supply curve would shift to the left.
C) rise by 60 percent, and the aggregate demand curve would shift to the left.
D) fall by $1.50, and the aggregate demand curve would shift to the right.

Question

$\begin{array} { | c | c | } 
\hline Input ~Quantity & Real ~Domestic ~Output \
\hline 100 & 200 \
\hline 150 & 300 \
\hline 200 & 400 \
\hline
\end{array}$
The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. Suppose that the price of each input increased from $\$ 5$ to $\$ 8$. The per-unit cost of production in the economy would
A) rise by $1.50, and the aggregate supply curve would shift to the right.
B) rise by 60 percent, and the aggregate supply curve would shift to the left.
C) rise by 60 percent, and the aggregate demand curve would shift to the left.
D) fall by $1.50, and the aggregate demand curve would shift to the right.

Quizplus · Accepted Answer

The per-unit cost of production is derived by dividing the input quantity by the real domestic output. Before the price increase, the per-unit cost of production was $\frac{100}{200}=0.5$. After the price increase, the per-unit cost of production would be $\frac{100 	imes 8}{200}=4$. This is a 700 percent increase from the original per-unit cost of production, or a 60 percent increase from the per-unit cost of production when input prices were \$5.

Since the cost of production has increased, firms will be less willing to supply goods at any given price level. This will shift the aggregate supply curve to the left. Thus, the correct answer is B, rise by 60 percent, and the aggregate supply curve would shift to the left.

The Table Gives Information About the Relationship Between Input Quantities