12.4 Changes in Aggregate Supply

What does a rightward shift of the AS curve (from AS₁ to AS₂) indicate?

An increase in aggregate supply — firms produce more output at every price level.

What does a leftward shift of the AS curve (from AS₁ to AS₃) indicate?

A decrease in aggregate supply — firms produce less output at every price level.

What causes the AS curve to shift?

Changes in determinants that affect per-unit production costs.

What happens to AS when wages fall?

AS shifts right — lower per-unit costs increase profits.

What happens to AS when wages rise?

AS shifts left — higher per-unit costs reduce profits.

How does increased immigration affect AS?

Labor supply rises → wages fall → AS shifts right.

How does early retirement affect AS?

Labor supply falls → wages rise → AS shifts left

What happens when machinery prices fall due to cheaper steel/electronics?

Capital costs fall → AS shifts right.

How does discovering new land resources affect AS?

Land prices fall → per-unit costs drop → AS shifts right.

What happens to AS when imported oil prices rise?

AS shifts left — higher input costs reduce supply.

What happens when the dollar appreciates?

Imported resources become cheaper → AS shifts right.

What happens when the dollar depreciates?

Imported resources become more expensive → AS shifts left.

How is productivity calculated?

Productivity = Total output ÷ Total inputs

How does increased productivity affect per-unit production cost?

It lowers per-unit cost → AS shifts right.

What are sources of productivity growth?

Better tech, education/training, business practices, labor reallocation.

What happens to AS when productivity decreases?

Per-unit costs rise → AS shifts left.

What effect do higher business taxes have on AS?

Increase costs → AS shifts left.

What effect do subsidies have on AS?

Lower costs → AS shifts right.

How does increased regulation affect AS?

Raises compliance costs → AS shifts left.

How can deregulation affect AS?

May reduce costs → AS shifts right (if efficiency improves).

Wages cause AS to shift…

to the left