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Answer the Following Question: What Are the Determinants of Aggregate Supply (As)? - Economics

Answer in Brief

Answer the following question:
What are the determinants of Aggregate Supply (AS)?

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Solution

Aggregate supply indicates the total amount of goods and services produced within an economy at a given the general (or overall) price level during an accounting period.

`AS = f(barN,barL,barK,barT)`

where,
AS = Aggregate supply
N = Natural resources
L = Labour
K = Stock of capital
T = State of technology
Natural resources: Natural resources include the gifts of nature such as fertile land, weather conditions, adequate rainfall, flora and fauna, perennial rivers etc. The abundant availability of all these factors act in favour of production. The aggregate supply of a country bestowed with these natural resources will be higher and vice-versa.

Labour: Availability of skilled and motivated labour is another determinant of supply. The supply in an economy with abundance of skilled labour will be high and vice-versa.

Capital: Capital is essential in the production process. Capital helps in acquiring raw materials, equipments, plant and machinery, buildings etc. which are essential for increasing the production. Greater the stock of capital, greater would be the level of output and production. 

State of technology: The state of technology in an economy decides the level of supply. Advanced technology helps in improving the production efficiency in a a country. With better and advanced technology production can be increased while reducing the cost of production. This in turn positively affects the supply. Thus, the availability of modern and advanced technology helps in increasing the supply.

Concept: Concept of Aggregate Demand and Aggregate Supply
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APPEARS IN

Micheal Vaz Economics HSC 12th Standard Maharashtra State Board
Chapter 10 Determinants of Aggregates
Exercise | Q 2 | Page 94
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