Use the following to answer questions :
Figure 3-1
-Let P* and Q* represent market clearing price and quantity, respectively.Given the supply and demand curves drawn in Figure 3-1, an increase in the price of an input employed in the production of Q can be expected to cause:
A)P* and Q* to climb.
B)P* to climb while Q* falls.
C)P* to climb while Q* holds steady.
D)P* to fall while Q* climbs.
E)P* and Q* to fall.

Question

Use the following to answer questions :
Figure 3-1 
-Let P* and Q* represent market clearing price and quantity, respectively.Given the supply and demand curves drawn in Figure 3-1, an increase in the price of an input employed in the production of Q can be expected to cause:
A)P* and Q* to climb. 
B)P* to climb while Q* falls. 
C)P* to climb while Q* holds steady. 
D)P* to fall while Q* climbs. 
E)P* and Q* to fall.

Quizplus · Accepted Answer

An increase in the price of an input employed in the production of Q shifts the supply curve to the left, which leads to a decrease in the equilibrium quantity (Q*) and an increase in the equilibrium price (P*). Therefore, P* climbs while Q* falls.

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