5 What can cause changes in the short run aggregate supply c

5.) What can cause changes in the short run aggregate supply curve? (Shifts in AS: aggregate supply)

6.) Why do Policy Makers have difficulty dealing with aggregate supplly shocks and policies are only geared to stimulate aggregate demand only?

Solution

5) factors affecting aggregate supply curve-

i) change in input cost- input cost is the cost of production and changes in cost of production affects Supply. Supply increases with decrease in input cost which shifts AS to the right. Increase in input price shifts AS to the left.

ii) changes in productivity of factors- input demand depends positively on marginal productivity of that input. Increase in productivity shifts AS to the right and decrease in productivity shifts AS to the left.

Technology advancement- is there is new technology which producers to produce more, demand for inputs increases.

Taxes- if the tax rate is increased profit to firms reduces which shifts AS to left due to decrease in supply