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    Scarcity and the AS curve

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

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

    Question 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?
    Hint: Try graphing this problem to help you answer it.

    Question 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?

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    Solution Preview

    The supply curve demonstrates the relationship between price and quantity produced. Firms can easily secure small amounts of necessary materials, so for small quantities they do not charge high per unit prices. However, as demand increases firms find they must invest more resources into finding the necessary materials. They may need to ship ...

    Solution Summary

    Scarcity, the aggregate supply curve, and mandated health insurance.