Answer the question on the basis of the following information about the relationship between input quantities and real domestic output in a hypothetical economy: $\begin{array} { c c }
\text { Input Quantity } & \text { Real Domestic Output } \
100 & 200 \
150 & 300 \
200 & 400
\end{array}$ Refer to the table.Suppose that the price of each input increased from $5 to $8.The per-unit cost of production in the economy would:
A) rise by $1.50 and the aggregate supply curve would shift to the right.
B) rise by 60 percent and the aggregate supply curve would shift to the left.
C) rise by 60 percent and the aggregate demand curve would shift to the left.
D) fall by $1.50 and the aggregate demand curve would shift to the right.

Question

Answer the question on the basis of the following information about the relationship between input quantities and real domestic output in a hypothetical economy: $\begin{array} { c c } 
\text { Input Quantity } & \text { Real Domestic Output } \
100 & 200 \
150 & 300 \
200 & 400
\end{array}$ Refer to the table.Suppose that the price of each input increased from $5 to $8.The per-unit cost of production in the economy would:
A) rise by $1.50 and the aggregate supply curve would shift to the right.
B) rise by 60 percent and the aggregate supply curve would shift to the left.
C) rise by 60 percent and the aggregate demand curve would shift to the left.
D) fall by $1.50 and the aggregate demand curve would shift to the right.

Quizplus · Accepted Answer

If the price of each input increases from $5 to $8, then the per-unit cost of production will increase by 60 percent ($3 increase divided by initial cost of $5). This will cause firms to decrease production, resulting in a leftward shift of the aggregate supply curve. The resulting increase in per-unit cost would cause firms to increase their prices, leading to a leftward shift of the aggregate demand curve. Therefore, the correct answer is B.