Transcript Week 15 Objective: Students will learn the determinants of AS and

REVIEW: With your partner answer
the following questions…
1) What is the difference between Micro & Macro
Economics?
2) What is ‘Supply’?
3) Whose perspective is it from?
4) What are the 3 Determinants of Supply?
5) Does the ‘Supply’ we’ve studied so far demonstrate a
Micro or Macro example of economics?
Use the dictionary and textbook
(p. 344) to define the following
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Aggregate
Aggregate Output (AO)
Price Level (PL)
Aggregate Demand (AD)
Aggregate Demand Curve
Aggregate Supply (AS)
Aggregate Supply Curve
Aggregate
• collection of items that are gathered
together to form a total quantity. It may
refer also to:
Aggregate Output
• Total amount of goods and services in
the economy during a given period
= same as Real GDP
= same as Output/Employment (O/E)
Price Level
• Average price of aggregate output
• = supply & demand of the total measure
of output
Aggregate Demand
• Sums up the demands of households,
firms, government and the rest of the
world
Aggregate Demand Curve
• The total output of the economy and PL
are determined at the intersection of the
AD & AS curves.
• The equilibrium reflects Real GDP and
the PL
Aggregate Supply
• How much output U.S. producers are
willing and able to sell at each price
level
• Inverse relationship => As PL goes up,
O/E goes down and vice versa.
Aggregate Supply Curve
{Also called “Output to Employment” [O/E]}
Starting Point of AS:
PL
AS
A
PL1
AD
O/E1
O/E
Increase in AS:
PL
AS
AS2
A
PL1
PL: _______
B
PL2
O/E: _______
O/E1
O/E2
O/E
Decrease in AS:
AS2
PL
AS
PL2
B
A
PL: _______
PL1
O/E: _______
O/E2
O/E1
O/E
DETERMINANTS OF AGGREGATE
SUPPLY
1.Resource Prices
2.Productivity
3.Production Technology
4.Government Taxes and
Regulations
The Four Determinants of AS
• Draw the following chart and based on
the definition of each determinant figure
out what would cause an increase and a
decrease in AS for each.
• Do this with your partner!
Determinants of
AS
1. Resource
Prices
2.Productivity
3. Production
Technology
4. Gov’t taxes
and regulations
Definition
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
(MAKE LESS)
Determinants of
AS
Definition
1. Resource
Prices
The price it takes
for business to
make their goods
and/or services
2.Productivity
How efficient the
labor force is
3. Production
Technology
The development
of new and better
technology
4. Gov’t taxes
and regulations
Laws and
regulations that
the gov’t passes
for all businesses
to adhere to
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
(MAKE LESS)
Determinants of
AS
Definition
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
(MAKE LESS)
1. Resource
Prices
The price it takes
for business to
make their goods
and/or services
If resource prices
goes down, AS
shifts to the right.
(make more)
If resource prices
goes up, AS shifts
to the left. (make
less)
2.
Productivity
How efficient the
labor force is
3. Production
Technology
The development
of new and better
technology
4. Gov’t taxes
and regulations
Laws and
regulations that the
gov’t passes for all
businesses to
adhere to
Determinants of
AS
1. Resource
Prices
2.
Productivity
Definition
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
If labor
productivity
increases, AS
shifts to the right.
If labor productivity
decreases, AS
shifts to the left.
(MAKE LESS))
The price it takes
for business to
make their goods
and/or services
How efficient the
labor force is
3. Production
Technology
The development
of new and better
technology
4. Gov’t taxes
and regulations
Laws and
regulations that
the gov’t passes
for all businesses
to adhere to
Determinants of
AS
Definition
1. Resource
Prices
The price it takes
for business to
make their goods
and/or services
2.
Productivity
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
(MAKE LESS)
If you have new or
better technology,
AS shifts to the
right.
If you develop no
technology, AS
shifts to the left.
How efficient the
labor force is
3. Production
Technology
The development
of new and better
technology
4. Gov’t taxes
and regulations
Laws and
regulations that
the gov’t passes
for all businesses
to adhere to
Determinants of
AS
Definition
1. Resource
Prices
The price it takes
for business to
make their goods
and/or services
2.
Productivity
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
(MAKE LESS)
If less laws and
regulations are
passed, AS shifts
to the right.
If more laws and
regulations are
passed, AS shifts
to the left.
How efficient the
labor force is
3. Production
Technology
The development
of new and better
technology
4. Gov’t taxes
and regulations
Laws and
regulations that
the gov’t passes
for all businesses
to adhere to
Determinants of
AS
Definition
What will cause an
Increase in AS?
(MAKE MORE)
What will cause a
Decrease in AS?
(MAKE LESS)
1. Resource
Prices
The price it takes
for business to
make their goods
and/or services
If resource prices
goes down, AS
shifts to the right.
(make more)
If resource prices
goes up, AS shifts
to the left. (make
less)
2. Productivity
How efficient the
labor force is
If labor productivity
increases, AS shifts
to the right.
If labor productivity
decreases, AS
shifts to the left.
3. Production
Technology
The development
of new and better
technology
If you have new or
better technology,
AS shifts to the
right.
If you develop no
technology, AS
shifts to the left.
4. Gov’t taxes
and regulations
Laws and
regulations that
the gov’t passes
for all businesses
to adhere to
If less laws and
regulations are
passed, AS shifts to
the right.
If more laws and
regulations are
passed, AS shifts
to the left.
Complete the following scenarios with your
partner by answering the following
questions:
1. What happens to AS – does it increase or
decrease?
2. Based on which determinant?
3. Which way does the graph shift?
4. What happens to PL?
5. What happens of O/E?
6. Draw the graph.
Complete the following scenarios
with your partner:
1.The auto industry is
experiencing an
increase in the price
of steel. Using AD/AS
analysis, show the
effects of aggregate
supply, prices and
output/employment.
Shift the AS curve?
2. Labor productivity in
the U.S. is on the rise.
Graph the situation
and show how
aggregate supply,
prices and
output/employment
are affected.
Shift the AS curve?
3. Improved technology
has been developed
in the U.S. computer
industry. Graph the
situation and show
how aggregate
supply, prices and
output/employment
are affected.
Shift the AS curve?
4. New government
regulations have been
passed by Congress
to improve the safety
of SUVs. Graph the
situation and show
how aggregate
supply, prices and
output/employment
are affected.
Shift the AS curve?
5. Labor productivity in
the computer industry
has been rising at a
faster rate than
worker’s wages.
Graph the situation
and show how
aggregate supply,
prices and
output/employment
are affected.
Wrap-Up
What are the three ranges of AS?
In which range is the economy the best? The
worst? Explain why.
What is aggregate output?
What is price level?
What are two other ways to say
Output/Employment?
What are the four determinants of AS?
What causes an increase in AS? A decrease?