Comment on the following statement: "Input and output markets should be considered separately because they operate independently of one another."
What will be an ideal response?
The statement is false. Input and output markets are connected because firms and households make simultaneous decisions in both arenas. For example, a change in the price of one input will affect the amount of the input used, the demand for other inputs and the cost of producing the output. This will affect the quantity of the output purchased by households and may affect household demands for other goods as well.
You might also like to view...
The long-run aggregate supply curve will shift to the left when
A) technology improves. B) new sources of oil are discovered. C) the price level increases. D) population decreases.
Which of the following factors is expected to cause the demand curve for coffee to shift to the right?
A) An increase in the supply of coffee due to better weather B) A higher personal tax on the income of all consumers C) A fall in the manufacturing cost of coffee D) A higher tax on the sale of tea, a substitute for coffee