Aggregate supply increases when
A) input prices rise.
B) subsidies are reduced.
C) there is a decrease in firms' market power.
D) business expectations are pessimistic.

Question

Quizplus · Accepted Answer

When there is a decrease in firms' market power, it means that there is increased competition in the market. This forces firms to produce goods and services more efficiently and at lower costs which increases their output. As a result, aggregate supply increases. Input prices rising would decrease aggregate supply, subsidies being reduced would decrease aggregate supply, and pessimistic business expectations would decrease aggregate demand, not supply.

Aggregate Supply Increases When