Arrange the following in the correct sequence, for a market with a fixed number of firms:
(A) The price of an input used in production rises.
(B) The marginal cost of production of the firms rises.
(C) The market supply curve shifts leftward.
(D) There is excess demand at the old price, and the price rises to a new equilibrium.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B), (C), (D)
(A) The price of an input used in production rises. — The starting event: an input the firms use costs more.
(B) The marginal cost of production of the firms rises. — A dearer input makes output costlier to produce, so the marginal cost of the firms rises.
(C) The market supply curve shifts leftward. — With higher costs, firms offer less at every price, so the supply curve shifts left.
(D) There is excess demand at the old price, and the price rises to a new equilibrium. — At the old price, buyers now want more than firms offer. This excess demand pushes the price up to a new equilibrium.
NCERT (2026-27): “Supply Shift … Now, suppose due to some reason, the market supply curve shifts leftward to SS2 with the demand curve remaining unchanged, as shown in panel (a). Because of the shift, at the prevailing price, p0, there will be excess demand equal to q0'' qo in the market. Some consumers who are unable to obtain the good will be willing to pay higher prices and the market price tends to increase. The new equilibrium is attained at point G where the supply curve SS2 intersects the demand curve DD0 such that q2 quantity will be bought and sold at price p2. …” “Supply Shift … Let us consider a situation where all other things remaining constant, there is an increase in the price of an input used in the production of a commodity. This will increase the marginal cost of production of the firms using this input. Therefore, at each price, the market supply will be less than before. Hence, the supply curve shifts leftward. In the Figure 5.3(a), this is shown by a shift in the supply curve from SS0 to SS2. But this increase in input price has no impact on the demand of the consumers since it does not depend on the input prices directly. Therefore, the demand curve remains unchanged. In Figure 5.3(a), this is shown by the demand curve remaining unchanged at DD0. As a result, compared to the old equilibrium, now the market price rises and quantity produced decreases.” |