REVIEW With your partner answer the following questions

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 ‘Supply’ demonstrate a Micro or Macro example of economics?

Use the dictionary and textbook (p. 344) to define the following • • 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

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 Inverse relationship => As PL goes up, demand of above sectors goes down

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 Positive relationship => As PL increases, more is supplied so they make more profit

Aggregate Supply Curve {Also called “Output to Employment” [O/E]}

Starting Point of AS: PL AS A PL 1 AD O/E 1 O/E

Increase in AS: PL AS AS 2 A PL: _______ PL 1 B PL 2 O/E: _______ O/E 1 O/E 2 O/E

Decrease in AS: AS 2 PL AS PL 2 B A PL: _______ PL 1 O/E: _______ O/E 2 O/E 1 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. Productivit y 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 3. Production Technology How efficient the labor force is The development of new and better technology 4. Gov’t taxes 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 3. Production Technology 4. Gov’t taxes and regulations What will cause an Increase in AS? (MAKE MORE) What will cause a Decrease in AS? (MAKE LESS) How efficient the labor force is The development If you have new or of new and better technology, technology AS shifts to the right. Laws and regulations that the gov’t passes for all businesses to adhere to If you develop no technology, AS shifts to the left.

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 3. Production Technology The development If you have new or of new and better technology, technology AS shifts to the right. If you develop no technology, AS shifts to the left. Laws and regulations that the gov’t passes for all businesses to adhere to If more laws and regulations are passed, AS shifts to the left. 4. Gov’t taxes and regulations If labor productivity increases, AS shifts decreases, AS to the right. shifts to the left. If less laws and regulations are passed, AS shifts to the right.

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 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 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 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 aggregate supply, prices and output/employment are affected.