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Government reduces the price of inputs used in the production of commodity X. Describe the chain of effects of this change in the market.

Answer» <html><body><p></p>Solution :The chain of effects of this change can be summarised as under: <br/> Reduction in prices of inputs lowers the cost of production.<br/> Revenues remaining unchanged, profits increase. <br/> Increase in profits <a href="https://interviewquestions.tuteehub.com/tag/induces-515283" style="font-weight:bold;" target="_blank" title="Click to know more about INDUCES">INDUCES</a> the producers to supply more. <br/> Demand remaining unchanged, excess supply emerges. <br/> This leads to competition among <a href="https://interviewquestions.tuteehub.com/tag/sellers-1200267" style="font-weight:bold;" target="_blank" title="Click to know more about SELLERS">SELLERS</a> because they are not able to sell as they want to sell. <br/> As a result, price starts falling. <br/> <a href="https://interviewquestions.tuteehub.com/tag/due-433472" style="font-weight:bold;" target="_blank" title="Click to know more about DUE">DUE</a> to <a href="https://interviewquestions.tuteehub.com/tag/fall-983217" style="font-weight:bold;" target="_blank" title="Click to know more about FALL">FALL</a> in price, demand expands and supply contracts till demand equals supply, creating new equilibrium at a <a href="https://interviewquestions.tuteehub.com/tag/lower-1080637" style="font-weight:bold;" target="_blank" title="Click to know more about LOWER">LOWER</a> price.</body></html>


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