If input prices are higher than firms expect,
A)output prices will have to go lower to get the firms to produce.
B)demand will likely increase.
C)the aggregate supply curve will shift to the left.
D)the supply curve will shift the right.

Question

Quizplus · Accepted Answer

If input prices are higher than firms expect, it means that the cost of production has increased, leading to a decrease in profitability. To maintain their profit margins, firms will reduce their output or production. This reduction in production will cause a leftward shift in the aggregate supply curve. As a result, the equilibrium price level will increase, causing a decrease in output and an increase in unemployment in the short run. Therefore, the correct answer is C, the aggregate supply curve will shift to the left.

If Input Prices Are Higher Than Firms Expect