Question

For each of the scenarios, please decide whether there will be an increase or decrease in short-run aggregate supply or if there will be no change.

1. Changes in the healthcare market cause employers to pay significantly more for health insurance they provide employees.
2. The price of lumber, a commodity, rises drastically due to the effect of heavy winter weather in the American Northwest, where much of the world's lumber is grown.
3. The production of a new type of blade for their combine harvesters, a tractor used to harvest crops, has allowed wheat farmers, like Herbert, to increase productivity by 40%.

Answer 1

1.Aggregate supply falls

2.Aggregate supply falls

3.Aggregate supply rises due to rise in productivity.

Step-by-step explanation:

1. In simple words, when the cost of production rises the profit margin of the supplier decreases leading as an incentive to supply less.

2. If the price of the input rises the cost of production also rises leading to lower supply because of lower profit margins.

3. The technological improvement leading to high production would lead to more profits and advantage of economies of scale thus working as an invective to supply more.