Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
D) Factors influencing AS: o changes in the cost of inputs and resources o…
Full specification wording
Circular flow of income, expenditure and output: d) Factors influencing AS: o changes in the cost of inputs and resources o changes in productivity
Aggregate Supply (AS) is the total volume of goods and services producers are willing and able to supply at a given price level.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 4 of 4
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
Aggregate Supply (AS) is the total volume of goods and services producers are willing and able to supply at a given price level. Short-run AS is primarily influenced by changes in the cost of inputs and resources. For instance, an increase in global oil prices raises production costs for many firms, shifting the short-run AS curve to the left, causing a higher price level and lower output. Long-run AS is determined by the economy's productive capacity, heavily influenced by changes in productivity. An improvement in labour productivity, perhaps due to better education or new technology, means more output is produced per worker. This increases the economy's potential output, shifting the long-run AS curve to the right.
What earns the marks
- Identify factors that change the cost of inputs, such as raw material prices, wages, and business taxes.
- Explain how an increase in input costs shifts the short-run Aggregate Supply curve to the left.
- Define productivity as the output per unit of input, such as labour productivity.
- Analyse how improvements in productivity shift the long-run Aggregate Supply curve to the right.
- Differentiate between short-run shocks to input costs and long-run changes in productive capacity.
Common mistakes and how to put them right
Confusing production with productivity.
Put it right: Production is the total output, whereas productivity is the rate of output per unit of input, such as output per worker.
Assuming a change in the general price level shifts the AS curve.
Put it right: A change in the general price level causes a movement along the AS curve; shifts are caused by changes in costs or productivity.
Stating that higher wages always shift long-run AS to the left.
Put it right: Higher wages increase short-run costs, shifting short-run AS left, but if they reflect higher productivity, long-run AS shifts to the right.
Exam tips
- When discussing input costs, use concrete examples like energy prices or minimum wage changes to ground your analysis.
- Clearly distinguish between short-run AS, driven by costs, and long-run AS, driven by the quantity and quality of resources and productivity.
- Use supply-side policies as a practical application when evaluating how a government might attempt to improve productivity.
Try the lesson
The start of the Circular flow of income, expenditure and output: d) Factors influencing AS: o changes in the cost of inputs and resources o changes in productivity lesson, made from checked teaching notes for this specification point.
Have a go first
Which of the following changes would most likely cause a short-run increase in aggregate supply (AS)?
Listen
Aggregate Supply (AS) is the total volume of goods and services producers are willing and able to supply at a given price level. Short-run AS is primarily influenced by changes in the cost of inputs and resources. For instance, an increase in global oil prices raises production costs for many firms, shifting the short-run AS curve to the left, causing a higher price level and lower output. Long-run AS is determined by the economy's productive capacity, heavily influenced by changes in productivity. An improvement in labour productivity, perhaps due to better education or new technology, means more output is produced per worker. This increases the economy's potential output, shifting the long-run AS curve to the right. A strong answer earns marks for these points. Identify factors that change the cost of inputs, such as raw material prices, wages, and business taxes. Explain how an increase in input costs shifts the short-run Aggregate Supply curve to the left. Define productivity as the output per unit of input, such as labour productivity. Analyse how improvements in productivity shift the long-run Aggregate Supply curve to the right. A common slip: Confusing production with productivity. Instead, Production is the total output, whereas productivity is the rate of output per unit of input, such as output per worker. Exam tip: When discussing input costs, use concrete examples like energy prices or minimum wage changes to ground your analysis.
See it
Key words
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Aggregate Supply
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Productivity
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Short-run Aggregate Supply
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Long-run Aggregate Supply
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See every definition
- Aggregate Supply
- The total volume of goods and services producers are willing and able to supply at a given price level.
- Productivity
- The output per unit of input, such as labour productivity.
- Short-run Aggregate Supply
- Primarily influenced by changes in the cost of inputs and resources.
- Long-run Aggregate Supply
- Determined by the economy's productive capacity, heavily influenced by changes in productivity.
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