Resource Prices refer to the cost of the inputs used in the production of goods and services. These costs include wages for labor, prices of raw materials such as oil, metals, or agricultural products, and the cost of capital like machinery or buildings. Changes in these prices can significantly influence the aggregate supply.
When resource prices decrease, the costs for producing goods and services also fall. This makes it cheaper for companies to create products, encouraging increased production. As a result, the aggregate supply curve shifts to the right, indicating higher supply levels at the same price.
- For example, a drop in oil prices reduces transportation and production costs across various industries, supporting an increase in overall supply.
Conversely, if resource prices increase, production becomes more expensive, leading to a reduction in supply. This causes the aggregate supply curve to shift left, reflecting lower production levels at a given price.