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Input costs

16 December, 2015 - 15:14

Input costs can vary independently of technology. For example, a wage negotiation that grants workers an increase above the general inflation rate will increase the cost of production. This is reflected in a leftward, or upward, supply shift: Any quantity is now priced higher; alternatively, suppliers are willing to supply less at the going price.

As a further example, suppose the government decrees that power-generating companies must provide a certain percentage of their power using ‘green’ sources – from solar power or windmills. Since such sources are not yet as cost efficient as more conventional power sources, the electricity they generate comes at a higher cost.