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What
is aggregate supply? What are the factors that
makes a shift of aggregate supply curve?
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Posted:
Oct 2009 |
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Aggregate
Supply a Product (service) is the quantity of
products (services) that sellers are willing and able to
sell. Offered quantity is positively correlated with
good price. The law of Supply says: with the rise of
prices of a good, the supply is growing as well,
and vice versa, assuming that other factors constant.

In
order to determine how the market works, it is necessary
to determine the market supply. The market supply is the
sum of all individual bids for certain goods or service.
Market supply curve represents the horizontal sum up all
the individual bids.
The
Supply curve is not static. It can change, depending of
various factors. The shift of supply can happen during
the change of input prices, change of technology and
number of suppliers.

For
example, the new category of product is making suppliers
to produce a large quantities of the new product. Since
the product is new the interest is high, the price is
high as well. Therefore the supply curve moves to T1. Later on,
the the input prices goes down and technology is getting
more efficient, therefore the supply curve returns to
the initial. Finally, as more competitors are trying to grab
the part of the market, the prices are further dropping
down, shifting the curve of supply to T2.
Recommended
reading:
Aggregate
Demand of Market
Market
Balance: Demand and Supply Equilibrium
Case Study: Shift of Supply and Demand
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