Question

Which of the following choices correctly illustrates how changes in opportunity costs affect supply?

A) A decrease in the cost of inputs leads to an increase in supply.
B) A decrease in the price of substitute goods decreases supply.
C) An increase in the price of inputs decreases supply.
D) A decrease in the price of complementary goods increases supply.

Answer 1

Changes in opportunity costs can affect supply. When the cost of inputs decreases, it lowers the production cost for firms, leading to an increase in supply. Conversely, an increase in the price of inputs increases production costs, resulting in a decrease in supply.

Step-by-step explanation:

Changes in opportunity costs can affect supply. When the cost of inputs decreases, it lowers the production cost for firms, leading to an increase in supply. For example, if the price of key inputs like labor or raw materials goes down, firms can produce more goods or services at a lower cost, which increases supply.

On the other hand, an increase in the price of inputs, such as a rise in wages or cost of raw materials, will increase production costs for firms. This leads to a decrease in supply since it becomes more expensive for firms to produce the same quantity of goods or services.

Therefore, the correct choice that illustrates how changes in opportunity costs affect supply is option C) An increase in the price of inputs decreases supply.