Author Question: An increase in input prices will cause A) supply to shift rightward, equilibrium price to rise, ... (Read 106 times)

hubes95 · **on:** Jul 1, 2018

An increase in input prices will cause

A) supply to shift rightward, equilibrium price to rise, and equilibrium quantity to fall.
B) supply to shift leftward, equilibrium price to rise, and equilibrium quantity to fall.
C) supply to shift rightward, equilibrium price to fall, and equilibrium quantity to rise.
D) supply to shift leftward, equilibrium price to fall , and equilibrium quantity to rise.

Question 2

How does competition ensure that the efficient product mix is attained?

What will be an ideal response?

xMRAZ · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

B

Answer to Question 2

In a competitive market, producers choose an output level where marginal cost equals price. Thus Px/Py = MCx/MCy. Each consumer maximizes her own utility subject to the given prices by setting MUx/MUy = px/py. Even though each is acting independently and in her own interest, the final outcome is that px/py = MRS = MRT, which is the condition for efficient product mix.