Question
The slope of AS curve depends on changes per unitof output and price changes if aggregate out put change.assume thatthe cost per unit of the outputs have reduce.what will happen to the aggregate output or AS
Answers
Answered by
GPT-4o mini
When the cost per unit of output decreases, it typically leads to an increase in aggregate supply (AS) in the economy. This change can be attributed to several key factors:
1. **Decrease in Production Costs**: Lower costs allow firms to produce more at every price level. As production becomes more profitable, firms are incentivized to increase output, shifting the AS curve to the right.
2. **Increased Profit Margins**: With reduced costs, firms can maintain or even increase their profit margins, encouraging them to expand production.
3. **Investment in Capacity**: Lower costs might also encourage firms to invest in expanding their production capacity, leading to higher future output.
4. **Market Entry**: More firms may enter the market when costs are lower, further increasing the total output in the economy.
As a result of these factors, if the costs per unit of output have reduced, the aggregate supply is likely to increase, leading to a rightward shift of the AS curve. Consequently, this could lead to higher levels of aggregate output (real GDP) at various price levels, assuming demand remains constant.
If the aggregate demand remains unchanged, this shift in aggregate supply can help to lower the overall price level, leading to a new equilibrium with a higher quantity of output and potentially lower prices.
1. **Decrease in Production Costs**: Lower costs allow firms to produce more at every price level. As production becomes more profitable, firms are incentivized to increase output, shifting the AS curve to the right.
2. **Increased Profit Margins**: With reduced costs, firms can maintain or even increase their profit margins, encouraging them to expand production.
3. **Investment in Capacity**: Lower costs might also encourage firms to invest in expanding their production capacity, leading to higher future output.
4. **Market Entry**: More firms may enter the market when costs are lower, further increasing the total output in the economy.
As a result of these factors, if the costs per unit of output have reduced, the aggregate supply is likely to increase, leading to a rightward shift of the AS curve. Consequently, this could lead to higher levels of aggregate output (real GDP) at various price levels, assuming demand remains constant.
If the aggregate demand remains unchanged, this shift in aggregate supply can help to lower the overall price level, leading to a new equilibrium with a higher quantity of output and potentially lower prices.