Factors shifting the Aggregate Supply (AS) curve
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4. What factors can cause the Aggregate Supply (AS) curve to shift to the left?
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Hi Ayliz, let's solve this together. In this video, we will explore the major factors that can cause the Aggregate Supply, or A S, curve to shift to the left.
Leftward Shift of Aggregate Supply
To begin, a leftward shift of the Aggregate Supply curve represents a decrease in the economy's total supply. This means that at every price level, businesses are willing and able to produce less output.
Let's visualize this shift on a graph. The vertical axis represents the price level, and the horizontal axis represents real output or G D P. The shift from A S sub one to A S sub two shows a clear reduction in output at any given price level.
Generally, any event that increases the cost of production or decreases productivity will shift the A S curve to the left. Let's look at the primary factors starting with input prices.
Primary Factors Shifting the AS Curve to the Left
1. Increase in Input Prices\n* Higher Wages: An increase in nominal wages raises labor costs.\n* Raw Material Shocks: Higher costs of energy or raw materials, such as an oil price shock, increase overall production costs.
The second major factor is a decrease in productivity. When efficiency drops, it costs more to produce the same amount of output.
2. Decrease in Productivity\n* Declining Efficiency: If labor or capital becomes less productive, unit costs rise, causing a reduction in aggregate supply.
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