Answer to Question #168359 in Microeconomics for Pat Murphy

Question

If resources become scarce, then producers will utilize substitutes, which potentially lowers the costs of production. If this is true, then why is increases in exports a factor that increases LRAS and not increases in consumer or investment demand? Would firms seek substitutes for scarce resources in response to greater domestic demand or would they only do it for foreign parties?

Answer 1

Increases in exports a factor that increases LRAS and not increases in consumer or investment demand because in the long run, output is not affected by changes in the price level but consumer or investment demand will not increase because not every body has enough money to meet the high cost of production.

If substitutes for scarce resources are available and domestic demand is greater, firms seek substitutes for scarce resources in response to greater domestic demand or would they only do it for foreign parties