Suppose that an economy produces 2,400 units of output, employing the 60 units of input, and the price of the input is $30 per unit. All else equal, if the price of each unit of input decreased from $30
To $20, then productivity would
A) increase from $40 to $90 and aggregate supply would decrease.
B) increase from $50 to $60 and aggregate supply would decrease.
C) increase from $60 to $70 and aggregate supply would increase.
D) remain unchanged but aggregate supply would increase.

Question

Quizplus · Accepted Answer

Productivity is measured as output per unit of input, not by the price of the input. Therefore, a change in the price of the input does not affect the calculation of productivity, which remains the same at 2400 units of output / 60 units of input = 40 units of output per unit of input. However, a decrease in the price of inputs would likely lead to an increase in aggregate supply, as production becomes cheaper for firms.

Suppose That an Economy Produces 2,400 Units of Output, Employing