Question

Option D of the question below is supposed to be the correct answer. Explain and show in a simple way why D is the correct answer.

INCORRECI Answer this Question on the basis of the data in the following table. Consider the following supply and demand schedules for bushels of corn. Quantity Quantity Price demanded supplied $20 375 320 280 345 An increase in the cost of labor lowers the quantity supplied by 65 bushels at each price. The new equilibrium price would be A) $22 • B) $24 C) $26 D) $28

Answer 1

Ans.18. D) $28

Price	Quantity demanded	Quantity supplied	New quantity supplied
$20	395	200	200 - 65 = 135
$22	375	250	250 - 65 = 185
$24	350	290	290 - 65 = 225
$26	320	320	320 - 65 = 255
$28	280	345	345 - 65 = 280
$30	235	365	365 - 65 = 300

Due to an increase in the cost of labor lowers the quantity supplied by 65 bushels of corn at each price and a new equilibrium price is $28 where Quantity demanded = New quantity supplied = 280 bushels of corn.

Note:

An increase in the cost of the production creates the lower quantity supply of the good at each price and the supply curve shifts upward and at the new equilibrium level where equilibrium price increases and the equilibrium quantity of the good decreases.