Question:
Suppose that textile is a key input in the production of wearing apparel. If the price of textile falls while all other variables are held constant, it is expected that the
(1) demand for textile to rise.
(2) supply of wearing apparel to rise.
(3) supply of wearing apparel to fall.
(4) demand for wearing apparel to rise.
(5) demand for wearing apparel to fall.
Correct Answer:
(2)
Answer Explanation:
Textile is a factor of production for apparel. When the cost of an input falls, it becomes cheaper to produce the final good. This increases the profit margin, shifting the supply curve for wearing apparel to the right (an increase in supply).
Topic: Demand & Supply Year: 2021
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