Question

Explain how input prices are a determinant of supply of a good by a firm?

Answer 1

Input prices directly affect the supply of a good. If the prices of inputs increase, then the cost of production also increases, while other things the same. Due to the rise in the cost of production, it becomes relatively less profitable for a producer to produce the good.

Consequently, lesser quantity is supplied at the given price. On the other hand, if the input prices falls, the cost of production also falls, thereby enabling the producer to supply more quantities of output at the given price. Thus,, the change in the input prices positively affect the supply of a product.