What changes are likely to happen in an economy when production costs rise?
A) Output and prices rise.
B) Output rises and prices fall.
C) Output falls and prices rise.
D) Output and prices fall.

Question

Quizplus · Accepted Answer

When production costs rise, it becomes more expensive for firms to produce goods and services. As a result, firms may decrease the quantity of goods produced, leading to a decrease in output. The decrease in supply may push prices higher in the long run due to less competition in the market. Therefore, output falls and prices rise.

What Changes Are Likely to Happen in an Economy When