Which statement correctly identifies a determinant of supply?

Which statement correctly identifies a determinant of supply?

• A. Input prices affect the cost of production, shifting supply.
• B. Consumer income affects demand, not supply.
• C. Tastes and preferences affect supply.
• D. Advertising affects supply.

Answer: (A)

Supply is influenced by the costs of production. When input prices rise, producing goods becomes more expensive, so firms are willing to supply less at each price, and the supply curve shifts left. When input prices fall, production becomes cheaper, and supply increases, shifting the curve right. This direct link between input costs and the amount firms are willing to supply makes input prices a determinant of supply. Consumer income and tastes affect demand, not supply, and advertising mainly influences demand as well. So the statement about input prices affecting production costs and shifting supply correctly identifies a determinant of supply.

Supply is influenced by the costs of production. When input prices rise, producing goods becomes more expensive, so firms are willing to supply less at each price, and the supply curve shifts left. When input prices fall, production becomes cheaper, and supply increases, shifting the curve right. This direct link between input costs and the amount firms are willing to supply makes input prices a determinant of supply.

Consumer income and tastes affect demand, not supply, and advertising mainly influences demand as well. So the statement about input prices affecting production costs and shifting supply correctly identifies a determinant of supply.