Question

Consider the impact on supply for a specific product in each of the following cases will supply go up, down, or be unchanged? Explain your expected effect in one complete sentence. (a) The price of oil goes up; how is supply of oil affected? (b) Kitchen staff negotiate a new contract with higher wages; how is supply of restaurant meals affected?

Answer 1

a) As the price has increased the supply and the price are positively related i.e. it will increase the supply of the oil as well.

b) As the wages of the kitchen staff are input to the restaurant meals it will increase the price of the meals and at a higher price the supply for the meal will decrease. It will shift the supply curve to the left i.e. at a higher price and lower quantity.