An increase in the price of milk increases the cost of manufacturing cheese. The market for cheese will change to a new equilibrium because there will be:

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To begin, consider what drives a change in the cheese market when the price of a key input (milk) rises.
Option a: A leftward shift in the demand curve for cheese. This would occur if buyers suddenly wanted less cheese at every price, perhaps due to a change in preferences or incomes. However, a higher milk price raises costs of production, not consumers’ willingness to purchase cheese at existing prices, so this option misattributes the cause to demand rather than supply.
Option b: A leftward shift in the supply curve for cheese. This correctly captures the effect of higher input costs: producers supply less cheese at each price because producing cheese becomes more expensive. The supply curve shifts left, leading to a higher equilibrium price and a lower equilibrium quantity, holding other factors constant.
Option c: An increase in the demand for milk. While this would affect the milk market, it does not directly describe a shift in the cheese market’s supply. The question focuses on how the cheese market responds to a higher price of milk used to produce cheese, not on demand changes for milk itself.
Option d: A decrease in the demand for cheese. A drop in demand would shift the demand curve left, reducing quantity and price for cheese, but it does not reflect the production cost increase caused by pricier milk. The primary channel from a higher input cost is a supply-side shift, not a demand-side change.

MCD2020 - T1 - 2025 Tutorial Quiz 2 - Market Forces of Supply and Demand

An increase in the price of milk increases the cost of manufacturing cheese. The market for cheese will change to a new equilibrium because there will be:

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