The aggregate supply (AS) curve

1. In the 1990s, the technology revolution caused the wide-spread use of information technology in all areas of production, thus improving productivity and lowering costs; illustrate the effect of this by shifting the aggregate supply (AS) curve in the appropriate direction.

2. Suppose that a new labor law increases the minimum required number of paid vacation days for all full-time employees; illustrate the effect of this by shifting the aggregate supply (AS) curve in the appropriate direction.

Please refer to Explanation

Explanation:

1. In the 1990s, the technology revolution caused the wide-spread use of information technology in all areas of production, thus improving productivity and lowering costs.

As a result of higher productivity and lower costs, companies were able to produces more.

This led to an increase in supply which then shifted the Supply Curve TO THE RIGHT. See the first graph. This also led to a drop in price.

2. Suppose that a new labor law increases the minimum required number of paid vacation days for all full-time employees.

An increase in the minimum required number of paid vacation days would have the effect of increasing labor costs. Labor is an input in Production so that would mean that production is now more expensive. This would shift the Supply Curve TO THE LEFT as suppliers will react by producing less to maintain profitability. See the second graph.

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