Question

Will each scenario shift the long-run aggregate supply (AS) curve, the short-run AS curve, both, or neither?(a) New technology improves solar panels so that they are less expensive(b) Federal government spending increases(c) A hurricane wipes out the orange crop in Florida(d) A new oil field is discovered that will provide a six-month supply of oil(e) A firm expects to introduce driverless cars within the next five years

Answer 1

A shift in the SRAS occurs when a change impacts the quantity produced in the short run such as lower input prices or government policies whereas a shift in the LRAS occurs when factors of production have become more efficient or there is an introduction of new technology which leads to higher production in the Economy.

(a) New technology improves solar panels so that they are less expensive. BOTH SRAS and LRAS.

The technology makes the panels cheaper so there will be a shift in SRAS. With the Solar Panels now improved, more electricity will be supplied which will enable higher production levels so LRAS will shift as well.

(b) Federal government spending increases. NEITHER SHIFT.

This has to do with Aggregate Demand not Supply.

(c) A hurricane wipes out the orange crop in Florida. SRAS will shift.

In this short term, the supply of Oranges will decrease which means the SRAS will shift left.

(d) A new oil field is discovered that will provide a six-month supply of oil. SRAS.

6 months is short term so this new supply will shift only the SRAS right to reflect the higher supply.

(e) A firm expects to introduce driverless cars within the next five year. LRAS.

This new technology in the long run will lead to higher production levels so the LRAS will shift right.