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How does scarcity affect the aggregate supply curve?

1. Describe how the concept of scarcity affects the aggregate supply curve.

2. Suppose the government mandates that all companies over 50 employees must provide an increased level of health care benefits. Could you please explain what effect this will have on the aggregate supply curve.

3. Assume the economy is at equilibrium and output is at 20,000. A rightward shift in the supply curve shows that the economy can produce 26,000 at the same price as before. Where will output be at the new equilibrium? Above the new 26,000 possible output, equal to the new 26,000 possible output, or below the new 26,000 possible output? Why?

4. Suppose the government increases the retirement age to 75. That is, workers will not be eligible for full retirement benefits until they are 75. What effect will this have on aggregate supply?

Thank you!

Solution Preview

Scarcity, economically speaking, means that each resource has more purposes than it can satisfy. Therefore, society must decide which purposes are the most important. The supply curve is a representation of how producers have chosen to use resources. The cost of producing different goods varies. As costs increase, producers must charge more for the goods. Consumers choose how to maximize their utility based on the prices they are offered. If they buy many goods, the ...

Solution Summary

This solution discusses how the aggregate supply curve is affected by scarcity and other changes in 322 words.