Explain the impact an increase in cost of productions might have on the market price and output of a good

An increase in the cost of productions of a product would lead to several decisions being made the producer; they may either keep their market price the same, reducing their profit margins, or they may increase the market price to negate the impact of the increase in cost of productions on their profits. The increase in cost of productions would cause a shift of the supply curve to the left, depicting a drop in output of the good and cause the market price to increase. An example of this is if the cost of steel increases, the cost of producing a car also increases, and the market price of the car will increase and less cars will be produced.

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Answered by Ahmed R. Economics tutor

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