What Will an Adverse Supply Shock Cause Output and Prices

question 6

Multiple Choice

What will an adverse supply shock cause output and prices to do?

• A) It will cause output and prices to rise.
• B) It will cause output and prices to fall.
• C) It will cause output to rise and prices to fall.
• D) It will cause output to fall and prices to rise.

---

Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead expenses, representing the costs necessary to convert raw materials into finished goods.

Equivalent Unit

A concept used in cost accounting to convert partially completed goods into a number of complete units of output, allowing for a consistent measure of output.

Process Costing

A costing method used for continuous or batch processing environments where the product is homogeneous, assigning costs to units of output on an average basis.

Conversion Costs

The combined costs of direct labor and manufacturing overheads incurred to convert raw materials into finished products.