How do the equilibrium price and the quantity of a commodity change when the price of input used in its production changes?
The change in the price of input price of input alters the cost of production of a commodity. Let us analyze the two different cases.
1. Increase in input price If the input price of a firm increases, the cost of production will also increase which will discourage the firm’s incentive to produce and supply the commodity. This will lead to a left upward shift of the marginal cost curve which further will lead to a leftward parallel shift of an individual firms supply curve and finally a leftward shift of the market supply curve. The demand curve remaining the same, the new equilibrium will occur at E2 with higher equilibrium price (P2) and lower quantity of output (q2).
2. Decrease in input price If an input price of a firm decreases, then the cost of production will also decrease. This will shift the marginal cost curve rightward, which implies that the firms supply curve will also shift rightward. Consequently, the market supply curve will shift rightward parallelly from S1S1 to S2S2. Demand curve remaining the same, the new equilibrium will occur at E2 with lower equilibrium price (P2) and higher quantity level of output (q2).
Popular Questions of Class 12 Micro Economics
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
- Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
- Q:-
Distinguish between a centrally planned economy and a market economy.
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4. - Q:-
What is the relation between market price and average revenue of a price-taking firm?
- Q:-
What is budget line?
- Q:-
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
- Q:-
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Recently Viewed Questions of Class 12 Micro Economics
- Q:-
Consider a market with two firms. The following table shows the supply schedules of the two firms: the SS1 column gives the supply schedule of firm 1 and the SS2 column gives the supply schedule of firm 2. Compute the market supply schedule.
Price (Rs.) SS1 (units) SS2 (units) 0
1
2
3
4
5
60
0
0
1
2
3
40
0
0
1
2
3
4 - Q:-
How does technological progress affect the supply curve of a firm?
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
How does an increase in the price of an input affect the supply curve of a firm?
- Q:-
Will a profit-maximising firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.
- Q:-
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
- Q:-
What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
- Q:-
What do you understand by normative economic analysis?
- Q:-
The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine also the market price of the good.
Quantity Sold TR (Rs.) TC (Rs.) Profit 0
1
2
3
4
5
6
70
5
10
15
20
25
30
355
7
10
12
15
23
33
40 - Q:-
How are equilibrium price and quantity affected when income of the consumers
a) Increase
b) Decrease
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