Four Examples

• Population: The size in the total population, which is affected by births, deaths, and migration, is a key influence on the quantity of labor. A larger population means an increase in the number of potential workers. While population generally increases through both natural growth and immigration, it can decrease as well. Reasons for a declining population including emigration, wars, famines, diseases, and natural disasters.


• Labor Force Participation: The proportion of the population willing and able to engage in production is another key influence on the labor quantity. A change in this proportion changes the labor force and shifts both aggregate supply curves. The U.S. economy has seen an increase in its labor force participation rate over the last 50 years largely through an increase in the proportion of women in the labor force.


• Capital Stock: Changes in the economy's stock of capital is the most important influence on the quantity of capital. These changes are brought about through a combination of investment and depreciation. Investment adds to the capital stock and depreciation reduces it. Investment has the curious role of affecting both the aggregate demand curve, as one of the four aggregate expenditures, and the aggregate supply curves, by influencing the capital stock.


• Exploration: The discovery of new sources of raw materials or other natural resources influences the quantity of land. While the modern economy is unlikely to "discover" large masses of land like explorers did a few centuries back, exploration does identify mineral deposits, fossil fuel reserves, and other natural resources that increase aggregate supply. Alternatively, depletion of existing natural resources causes a decrease in aggregate supply.

Shifting the Curves

Shifting the SRAS Curve
Shifting the LRAS Curve

More Resource Quantity

To see how an increase in resource quantity affects these aggregate supply curves, click the [More Resource Quantity] button. The greater resource quantity triggers an increase in aggregate supply and a rightward shift of both the short-run and long-run aggregate supply curves.

Less Resource Quantity

To see how a decrease in resource quantity affects these aggregate supply curves, click the [Less Resource Quantity] button. The smaller resource quantity triggers a decrease in aggregate supply and a leftward shift of both the short-run and long-run aggregate supply curves.

The Other Two Determinants

• Resource Quality: This determinant includes any ceteris paribus factors that affect the quality of labor, capital, land, or entrepreneurship used in production, including education and technology. An increase in resource quality increases aggregate supply and shifts both long-run and short-run aggregate supply curves to the right. A decrease shifts both curves to the left.


• Resource Price: This determinant includes any ceteris paribus factors that affect the price of labor, capital, land, or entrepreneurship used in production. Two most notable resource price determinants are wages and energy prices. A decrease in resource price increases aggregate supply and shifts the short-run aggregate supply curve to the right. An increase shifts the short-run aggregate supply curve to the left.