Brent,a brilliant inventor,found a way to grind up discarded newspapers and create a new,far lower-cost,effective plaster.What effect would this innovation have on aggregate supply?
A)If it is able to replace existing products with its superior characteristics, it will shift SRAS to the right and LRAS to the right.
B)If it is able to substantially lower the costs of home insulation products, it would shift SRAS to the right but not change the LRAS.
C)By reducing the demand for existing plaster, it would have no net effect on the SRAS but shift LRAS left.
D)By providing a readier market to use discarded papers, it would reduce disposal costs for many producers and thereby shift SRAS to the left, leaving LRAS unchanged.

Question

Quizplus · Accepted Answer

Brent's innovation would increase the overall productivity of the economy by introducing a new, more cost-effective product. Hence, it would shift SRAS to the right by increasing the quantity of output that can be produced at every price level. Since it uses discarded newspapers as a raw material, it may also reduce the costs of production, leading to a shift in LRAS to the right.

Brent,a Brilliant Inventor,found a Way to Grind Up Discarded Newspapers