Question

Price Level	AD	AS
50	1,000	250
60	950	580
70	900	750
80	850	850
90	800	900

1. Would you expect prices to be a relatively large or small concern for this economy?
2. Imagine that input prices fall and so AS shifts to the right by 150 units. Plot a new AS curve and identify the new equilibrium on the same graph from (a).
3. How will the shift in AS affect the original output, price level, and employment?

Answer 1

- - - An - (4) For the diagram, equilibrium occurs at point where price lenela so and Output = 850 Price This price end is high Leuel for this economy and this is a large concern for this to economy. T AD (6) Fall in input prices will shift af the AS aurue of the economy right ward buce Lew & out! to As' and this new equilibrium occurs at paint & ubere where Asl and AD intersects. ( At the new equilibriun lend E, it can be seen that Output has risen , price level has fallen and increase in Output increases labor demand which increases production.