Refer to the above graph.What will shift D₁ to D₂? A) An increase in the price of a substitute input (if the output effect is greater than the substitution effect) B) A decrease in the price of a substitute input (if the substitution effect is greater than the output effect) C) A decrease in the price of a substitute input (if the output effect is greater than the substitution effect) D) An increase in the price of a complementary resource

Question

Quizplus · Accepted Answer

D₁ represents the current equilibrium point. In order to shift it to D₂, we need to consider the factors that would cause an increase in the quantity demanded (shift to the right) and a decrease in the quantity supplied (shift to the left). An increase in the price of a substitute input (such as labor or machinery) would decrease the supply of the output, but if the output effect is greater than the substitution effect, it would increase the demand for the output. Thus, choice C is the correct answer. None of the other options would directly affect the demand and supply of the output.

Refer to the Above Graph