Question

How does inflation typically affect the supply of goods in the market?

• A. Inflation always increases supply by lowering production costs
• B. Inflation reduces supply by increasing input and production costs
• C. Inflation has no effect on supply
• D. Inflation causes supply to increase due to higher demand

Hint:

Inflation usually increases production costs, which in turn decreases supply because businesses face higher costs to produce goods.

Answer 1

The Correct Option is B

Inflation leads to an increase in the general price level, including the costs of raw materials, labor, and other inputs needed for production. As these costs rise, producers may find it less profitable to supply the same quantity of goods at previous prices.
Thus, inflation typically reduces supply in the market by increasing production costs. Option 1 is incorrect because inflation does not lower production costs, and Option 3 is incorrect as inflation does affect supply by raising costs.
Option 4 is also incorrect because inflation typically leads to a decrease in supply, not an increase due to higher demand.