Question

Masks are made out of tightly woven cloth. If the price of cloth increases, there is a shift in the supply curve of cloth that leads to

a. a permanent surplus of cloth.
b. an increase in the price of a cloth.
c. a shift in the demand curve for cloth.
a temporary surplus of cloth.

Answer 1

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.