The market for commodity A is in equilibrium. The price of its inputs rises. Explain its chain of effects on equilibrium price, quantity demanded and supplied with the help of a diagram.

Explanation

A rise in price of inputs leads to an increase in the cost of production, hence leading to a decrease in supply as the profit margin of the producers reduce, keeping other things constant. The decrease in supply is associated with a leftwards shift in the supply curve. As a result, the price increases since there is less supply leading to a competition among buyers. As the price rises, the qunatity demanded falls but the quantity supplied increases. This effect will continue until the quantity demanded equals the quantity supplied. As a result of all this, the equilibrium quantity falls and the equilibrium price rises.