Final answer:
An increase in the price of cloth due to higher production costs most likely causes a leftward shift in the supply curve, leading to higher prices for cloth, rather than a permanent surplus or a shift in the demand curve.
Step-by-step explanation:
When the price of cloth increases, it means there has been an increase in the production costs for cloth. This likely leads to a leftward shift in the supply curve because the cost of producing cloth has risen, and manufacturers may produce less or at a higher price to cover the increased costs.
This shift in the supply curve can lead to higher prices for cloth in the market. However, this doesn't directly cause a shift in the demand curve for cloth. The increase in price may eventually result in a change in quantity demanded, but the demand curve itself only shifts if there are changes in factors like consumer preferences, income, or price of related goods.
As a result, the correct answer to the student's question is that an increase in the price of cloth, due to costlier production, will most likely not yield a surplus but could result in an increase in the price of cloth.