Suppose that real domestic output in an economy is 20 units,the quantity of inputs is 10,and the price of each input is $4.Answer the following question on the basis of this information. Refer to the information.Given an increase in input price from $4 to $6,we would expect the aggregate:
A) supply curve to shift to the left.
B) supply curve to shift to the right.
C) demand curve to shift to the left.
D) supply and demand curves to both remain unchanged.

Question

Quizplus · Accepted Answer

If the price of inputs increases, the cost of production increases. This leads to a decrease in profitability for firms and they may reduce the quantity of output supplied to the market. As a result, the aggregate supply curve would shift to the left. The demand curve is not affected by changes in input prices, so option C is incorrect. Option D is also incorrect, as the supply curve is expected to shift in response to the change in input price. Thus, the correct answer is A.

Suppose That Real Domestic Output in an Economy Is 20