Along a short-run aggregate supply curve,a decrease in the price level causes
A) firms to increase their production levels, as the lower prices will increase consumer demand.
B) no change in output to occur, as at the macroeconomic level, the price level does not affect supply.
C) firms to reduce their production levels.
D) production levels to rise as the price of inputs becomes cheaper.

Question

Quizplus · Accepted Answer

Along a short-run aggregate supply curve, a decrease in the price level causes firms to reduce their production levels because a decrease in prices means that firms are receiving less revenue for each unit of output they sell. As a result, it becomes less profitable for firms to produce goods and services, and they will reduce production to maintain profitability.

Along a Short-Run Aggregate Supply Curve,a Decrease in the Price