The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that
A)technology and the prices of all factors of production remain constant.
B)unit costs remain constant.
C)all firms are price takers.
D)all firms are price setters.
E)technology and the prices of all factors of production do not remain constant.

Question

Quizplus · Accepted Answer

The aggregate supply curve assumes that technology and prices of all factors of production remain constant. This means that the level of output that firms are willing to produce and sell is independent of changes in the price level, which only affects the profitability of production but not the underlying factors that determine the capacity of firms to supply goods and services. The aggregate supply curve is therefore a vertical line at potential output, which corresponds to the level of production that can be sustained in the long run without inflationary pressures or excess capacity.

The Aggregate Supply Curve Relates the Price Level to the Quantity