An increase in production costs will shift the _______ aggregate supply curve to the _______.
A) short-run; right
B) long-run; right
C) short-run; left
D) long-run; left

Question

Quizplus · Accepted Answer

An increase in production costs, such as an increase in wages or raw material prices, will lead to a decrease in profit margins for firms. As a result, firms will reduce their level of production and supply of goods and services in the short run. This will shift the short-run aggregate supply curve to the left. In the long run, however, firms may be able to adjust their production processes and find ways to reduce costs, so the long-run aggregate supply curve is not affected by changes in production costs.

An Increase in Production Costs Will Shift the _______ Aggregate