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Unformatted text preview: AS 1 is the original supply curve and AS 2- AS 2 is the new upwards or leftwards shifted Aggregate Supply curve. On the new supply curve at a given price P 1 aggregate supply has decreased from q 1 to q 2 . If we were to start initially from O-AS 1 curve then O-AS would have been a rightward or a downward shifted supply curve showing greater quantity supplied at a given price level. Such shifts in the supply curve are caused by a variety of dynamic changes taking place in the economy. Technological improvements, skill development of labor, innovation, foreign trade prospects are some of examples of it. These factors may cause either favorable or unfavorable effects on the supply conditions. Their unfavorable nature causes an upward shift and favorable effects lead to a downward shift. In the long run, a downward shift in the aggregate supply conditions is normally experienced when an economy has been making progress and development....
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- Fall '10