If an input price for a good falls, then there will be a
a. Expansion of Demand
b. Contraction of Demand
c. Expansion of Supply
d. Contraction of Supply
The correct answer and explanation is:
The correct answer is c. Expansion of Supply.
Explanation: When the price of an input used in the production of a good falls, it becomes cheaper for producers to produce that good. This reduction in input costs incentivizes producers to increase production because it is now more profitable to do so. As a result, the supply of the good expands, meaning that more of the good can be made available at each price level.
In economic terms, the supply curve shifts to the right. This shift indicates that at any given price, producers are willing to supply a greater quantity of the good. The key here is that the change occurs due to a reduction in production costs, which directly influences the supply side of the market, rather than demand.
It is important to differentiate this concept from a change in demand. A change in demand occurs when factors like consumer preferences, income, or the price of related goods change. The price of inputs affects the supply side, not the demand side.
In summary, when the price of an input falls, the effect is on the supply curve, leading to an expansion of supply. Producers are now able to produce more at the same price level, and the market will respond with a greater quantity of the good being available for sale.