Resource Prices

The prices of the resources used as inputs in the production process help determine the costs of production incurred by firms. Higher resource prices raise production costs and, assuming a particular roduct price, squeeze profits. That reduction in profits reduces the incentive for firms to supply output at each product price. For example, an increase in the prices of iron ore and coke will increase the cost of producing steel and reduce its supply.

In contrast, lower resource prices reduce production costs and increase profits. So, when resource prices fall, firms supply greater output

Part One • An Intrdductidn to Economics and the Economy at each product price. For example, a decrease in the prices of seed and fertilizer will increase the supply of corn.

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