For each of the following determine if, for the good marked with bold lettering,

Question

For each of the following determine if, for the good marked with bold lettering, there is an increase, decrease or no change in supply. If the answer is “no change in supply,” explain what may be changing. a) The price of steel, an important material used in the construction of bridges, decreases. b) The price of flour used in baking bread decreases. c) Growers of cotton receive a generous government subsidy for every bale weighing 500 pounds. d) Gold mine owners expect the price of gold to decrease in the near future. e) Manufacturers of all goods in America see an unexpected increase in energy prices. f) The price of steel, an important material used in home construction, decreases.

Explanation / Answer

(a) Increase

Lower cost of inputs will increase supply.

(b) Increase

Lower cost of inputs will increase supply.

(c) Increase

Subsidy effectively reduces cost of input, so supply increases.

(d) No change

Expected fall in future price of the product does not affect current output of the product in general.

(e) Decrease

Higher energy price will raise cost of inouts, which will lower supply.

(f) Increase

Lower cost of inputs will increase supply.

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