Question

) Name the things in Chapter 10 that sift the supply curve, Which one of them is the most obvious determinants of the position of the aggregate supply curve according to your textbook.

Answer 1

Factors that bring shift in the supply curve include

• Cost of raw material/labor/machine - a higher cost of production reduces the amount of output that can be produced with budget so supply curve shifts left
• technology - improvement in technology increases labor and capital productivity so with same wage and rental price, more output is produced. supply curve shifts right.
• objectives of the firm: a diversified firm might want to promote one of its goods ahead of others so supply of promoted good is increased
• expectations of future prices: If a higher future price is expected, current supply is reduced and so supply curve shifts left.
• Number of firms: Even when a single firm has not done or experience anything discussed above, supply curve shift can occur when there is an entry or exit of firms. Production is increased or reduced respectively so supply may shift right or left.