What impact will a temporary decrease in the supply of a major input have on real output?
A)It will increase real output in both the short run and the long run.
B)It will increase real output in the short run but not in the long run.
C)It will decrease real output in both the short run and the long run.
D)It will decrease real output in the short run but not the long run.

Question

Quizplus · Accepted Answer

A temporary decrease in the supply of a major input will lead to an increase in the cost of production, which will reduce the profitability of firms. This decrease in profitability will cause firms to reduce their output in the short run. However, in the long run, firms may be able to find substitutes or adjust their production process to compensate for the decrease in supply, which could mitigate the negative impact on real output. Therefore, the decrease in supply will decrease real output in the short run but not in the long run.

What Impact Will a Temporary Decrease in the Supply of a Major