Throughout most of history, technology has advanced forward. Through scientific research, production experience, and just plain learning-by-doing, society tends to know more today than yesterday. Technology advances. Of course technology can decline, such as what happened during the European medieval ages, but this is highly unusual.

An advance in technology makes it possible to produce more output with a given quantity of resources or to produce the same quantity of output with fewer resources, hence causing an increase in both long-run and short-run aggregate supply. A less common decline in technology means producing less output with a given quantity of resources or to produce the same quantity of output with more resources, hence causing a decrease in both long-run and short-run aggregate supply.

Shifting the SRAS Curve
Shifting the LRAS Curve

Consider a pair of typical aggregate supply curves, both long-run and short run, such as those displayed in the exhibit to the right. The exhibit displays a positively-sloped short-run aggregate supply curve in the top panel and a vertical long-run aggregate supply curve in the bottom panel. Like all aggregate supply curves, these are constructed based on several ceteris paribus aggregate supply determinants, such as technology. The key question is: What happens to these aggregate supply curves if technology changes?

Advancing Technology

To see how better technology affects the aggregate supply curves, click the [Advancing Technology] button. The advance in technology triggers an increase in aggregate supply and a rightward shift of both the short-run and long-run aggregate supply curves.

Declining Technology

This decline in technology leads to a decrease in aggregate supply, both short run and long run, causing both SRAS and LRAS curves to shift leftward. Note again that the decrease in technology means a smaller quantity of real production is supplied at the same price level, which means a decrease in aggregate supply.

To see how a drop off in technology affects the aggregate supply curves, click the [Declining Technology] button. The decline in technology triggers a decrease in aggregate supply and a leftward shift of both the short-run and long-run aggregate supply curves.

What Does It Mean?

This technological march that shifts the short-run and long-run aggregate supply curves tends to be subtle and more often than not overwhelmed by business-cycle-inducing shifts of the aggregate demand curve. While it is easy to look back a few decades to note the pace of progress, changes are often overlooked as they occur, or if not, the changes are merely taken for granted.