How do the equilibrium price and quantity of a commodity change when price of input used in its production changes?
When the price of an input used in production increases, the marginal cost of production for firms rises significantly. As a result, the market supply at each price becomes less than before, leading to a leftward shift of the supply curve.
However, this increase in input price has no direct impact on consumers, so the demand curve remains unchanged. Comparing the old equilibrium with the new one, the interaction of the shifted supply and constant demand leads to a situation where the market price rises and the equilibrium quantity decreases.
Explanation
The provided context explicitly states that an increase in input price raises the marginal cost, causing the supply curve to shift leftward while the demand curve remains unchanged. Consequently, the new equilibrium is established at a higher price and lower quantity.