Question

Explain with reason, whether you agree or disagree with the following statement:

Aggregate supply is influenced only by availability of natural resources.

Answer 1

I do not agree with the statement. This is because there are other factors which determines the aggregate supply.

 

N = Natural resources             (which is considered to be constant)

L = Stock of Capital  (which is considered variable)

K = Supply of labour              (which is considered to be constant)

T = State of Technology         (which is considered to be constant)

 

The main determinants of the aggregate supply are briefly explained as follows:-

1.      Natural Resources: -Natural Resources refer to all kinds of resources, which are freely available in the nature and used in the process of production. They include land, climatic conditions, rainfall, water resources, sunshine, and minerals deposits. Etc. total production of goods and services in the economy depends on the availability of natural resources as well as their utilization. Since it is difficult to change the size of the natural resources, theyare considered to be constant.

 

2.      Supply of Labour: -It refers to total labour force and human resources (HR) available and used in the production of goods and services in the economy. The supply of labour depends on the size of the population, age composition of the population, education and training of the labour force. The size of and efficiency of the labour are very essential for increasing production. It is assumed that the supply of labour can be changed in the short run.

3.      Capital: -Capital is the produced means of production. It is a man-made factor of production. The aggregate supply of goods and services produced in the country depends on the availability and use and quality of capital. Therefore, more the capital more is the supply of goods, and less capital available, less would be the supply.The stock of capital is considered to be constant in short period.

4.      State of Technology: -The state of technology implies the application of modern and advanced techniques and methods in the production process. The application of improved technology increase overall productivity. In the short term, the state of technology is assumed be constant.

Thus, aggregate supply = f (N, L, K, T).