Question

Distinguish between a movement along the aggregate supply curve and a shift of the entire aggregate supply curve. What factors cause each to occur? Please include in your answer the COVID-19 impact in the economy.

Answer 1

Answer - The movement in the supply curve is caused by the change in the price of the product. If the price will increase , there will be upward movement and vice a versa. It is called change in quantity supplied.

For the shift to take place in the supply curve , there should be change in the factors other than price which affect the supply of the good. These could be change in price of inputs, level of technology used and the cost of production or the amount of resources. The price will be constant here. It is called change in supply.

In the currenct situation of Covid 19 , the production in industries is shut , there is shortage of resources. Hence the supply will decrease. This will be shown as the leftward shift of the supply curve signifying the decrease in supply.