Question

Select all that apply

Higher costs of production result in which of the following?
A. A decrease in the equilibrium price level
B. A rise in the equilibrium price level
C. A shift in the aggregate supply curve to the right
D. A shift in the aggregate supply curve to the left

Answer 1

Higher production costs cause a leftward shift in the supply curve, leading to a higher equilibrium price level as firms supply smaller quantities at any given price.

Step-by-step explanation:

Higher costs of production result in a rise in the equilibrium price level and a shift in the aggregate supply curve to the left. This is due to the fact that with increased production costs, a firm will supply a smaller quantity of its product at any given price because it earns lower profits. Consequently, this leads to an upward pressure on prices as the product becomes more scarce, resulting in a higher equilibrium price level when the supply curve shifts leftward.

If a firm faces higher costs of production, it will likely earn lower profits and supply a smaller quantity at any given price. This is because higher production costs reduce the firm's profit margin and decrease its ability to produce and sell goods. As a result, the supply curve shifts to the left.