How does an increase in input price affect equilibrium price and quantity exchanged of a commodity?

Question

Answer

In simple words increase in input price means increase in cost of product and when cost increase market price also increase. And due to it equilibrium price also increase. And demand of that product decrease. So quantity also decrease.

Answer

Due to an increase in input price, market supply curve shifts to left. When market supply shifts leftward and the demand remains the same equilibrium price increases and equilibrium quantity decreases. The equlilbrium price and quantity will move in opposite direction when supply curve shifts and demand remains the same.

Answer

Effect of Increase in Input Price on Equilibrium Price and Quantity Exchanged
Increased input prices have a significant impact on the equilibrium price and quantity exchanged of a commodity. This can be explained through the following points:

1. Shift in Supply Curve:
- An increase in input prices leads to an increase in production costs for producers.
- As a result, the supply curve shifts to the left, indicating a decrease in the quantity supplied at every price level.

2. Increase in Equilibrium Price:
- With a decrease in the quantity supplied due to higher input prices, the market equilibrium point shifts.
- The equilibrium price rises as producers pass on the increased costs to consumers to maintain profitability.

3. Decrease in Equilibrium Quantity Exchanged:
- Due to the higher input costs, producers are now willing to supply less quantity at each price level.
- This leads to a decrease in the equilibrium quantity exchanged in the market as consumers are willing to pay higher prices for the limited supply.

4. Impact on Market Dynamics:
- The increase in input prices can lead to a decrease in consumer welfare as they have to pay higher prices for the same quantity of the commodity.
- Producers may also experience reduced profits if consumers are not willing to pay the higher prices, leading to a decrease in overall market activity.
In conclusion, an increase in input prices disrupts the equilibrium in the market by causing a shift in the supply curve, leading to higher equilibrium prices and a decrease in the quantity exchanged. This imbalance in supply and demand can have significant implications for both producers and consumers in the market.

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