Economic Consequences of Higher Imported Input Costs

Supply Shock and the Emergence of a Bargaining Gap

Real Wage Decline During the 2020-2023 Inflation Surge

Pandemic-Induced Supply Chain Disruptions and Energy Price Shocks (2020-2022)

Imagine an economy where firms rely heavily on imported oil to produce goods. A sudden and sustained increase in the global price of oil occurs. Assuming firms aim to maintain their profit margins, what is the immediate effect on the price-setting curve and the real wage that firms are willing to pay at any given level of employment?

Firm Response to an Import Price Shock

Explaining the Price-Setting Curve Shift

An increase in the price of imported raw materials, used by all firms in an economy, leads to an upward shift in the price-setting curve because firms increase their output prices to cover the higher costs.

An economy that relies on foreign oil for production experiences a sharp, sustained increase in the global price of oil. Arrange the following events in the logical sequence that describes the impact on the economy's price-setting curve.

Analyzing the Impact of an Import Cost Shock

A country's economy relies heavily on imported components for its manufacturing sector. If a global supply chain disruption causes a permanent, significant increase in the price of these components, why does the economy's price-setting curve shift downward?

Analyzing a Firm's Response to an Import Cost Shock

An economy that relies heavily on imported oil experiences a downward shift in its price-setting curve. Which of the following events provides the best explanation for this shift, based on the mechanism of foreign producers claiming a larger share of the value of each unit of output?

Immediate Effects of an Oil Price Shock: PS Curve Shift and Output Share Redistribution