The price of flour rises. What would happen to the market for Hot Dog Buns? Is supply or demand impacted? Is it an increase or a decrease?

pick 2

Supply

Demand

Increase

Decrease

Supply , Increase

Explanation:

Flour is used in making Hot Dog Buns, therefore Flour is an input in the production of Hot Dog Buns. When the price of flour increases it means production input have increased, the production costs will  increases as a result of an increase in the price of Flour (input in the production of Hot Dog Buns).

It is important to determine whether the firm is in a short run or long run state in determining the impact each change will have in the demand, supply and Prices in the market. We will assume the firm in question is in a Short run state.

When Production Costs increases, Supply will be affected because quantity supplied at current market prices will decrease. Quantity Supplied will decrease because costs of production have increased  and the price have not increase in the Short run. Firms will manage costs by decreasing quantity produced and Supplied in the market.

Conclusion

An increase in the price of flour will impact the supply curve initially and decrease quantity supply

supply ⇒ decrease

Explanation:

When the price of a key input (flour) increases, the supply curve shifts to the left, reducing the quantity supplied at every price level.

This happens because the total cost of producing the good (bread buns) will increase, reducing the supplier surplus. Since the quantity supplied decreases, the equilibrium price will increase, decreasing the quantity demanded until a new equilibrium point is reached.

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