Input prices
Also called: Factor prices · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"; Class 12, Ch 5 "Market Equilibrium"
Meaning
Input prices, also called factor prices, are the prices a firm pays for its inputs, such as the wage rate, raw materials or fuel. A rise in input prices raises average cost and usually marginal cost at every level of output. The MC curve moves up, so the supply curve shifts left: the firm offers less at each price. A fall in input prices shifts supply right.
Example
Fertiliser subsidy lowers a farmer's input cost, so crop supply shifts right. A rise in wages at a garment factory raises the cost of each shirt. The factory then supplies fewer shirts at every price, so its supply shifts left.
Don't confuse with
- Price of the good itself: a change in the good's own price moves the firm along its supply curve. A change in input prices shifts the whole curve.