Question

Which one of the following is the result of an increase in price of factors of production?

• A. Rightward shift in supply curve
• B. Leftward shift in supply curve
• C. Expansion in supply
• D. Contraction in supply

Hint:

When the price of factors of production increases, it raises the cost of production and causes the supply curve to shift leftward, reducing the quantity supplied.

Answer 1

The Correct Option is B

Step 1: Understanding the Supply Curve:
The supply curve shows the relationship between the price of a good and the quantity supplied by producers. The position and shape of the supply curve are influenced by various factors, including the price of factors of production (such as labor, raw materials, and capital).
Step 2: Analyzing the Effect of Increased Prices of Factors of Production:
When the prices of factors of production increase (such as wages or raw material costs), it becomes more expensive for producers to produce goods. This typically causes the supply curve to shift to the left, indicating a decrease in the quantity supplied at every price level. This is because the higher production costs reduce profitability and the incentive to produce.
Step 3: Analyzing the Options:
- Option (A) Rightward shift in supply curve: This is incorrect. A rightward shift in the supply curve would occur if the cost of production decreases, making it cheaper to produce goods.
- Option (B) Leftward shift in supply curve: This is the correct answer. An increase in the price of factors of production leads to a leftward shift in the supply curve, as it becomes more costly to produce goods.
- Option (C) Expansion in supply: This is incorrect. Expansion in supply refers to an increase in the quantity supplied along the same supply curve, not a shift in the curve itself.
- Option (D) Contraction in supply: This is incorrect. Contraction in supply would occur if there is a decrease in the price of the good itself, not an increase in production costs.
Step 4: Conclusion and Answer:
The correct answer is (B) because an increase in the price of factors of production causes the supply curve to shift leftward.