Anything that decreases per unit production costs causes rightward shift in aggregate supply. Hence, American producers face lower dollar price for resources. Therefore, there is an increase in aggregate supply. Market Power Market power is the ability to set a price above the price that would occur in a competitive situation. OPEC controlled most of oil industry and thus, when they increased price of oil, they were able to make aggregate supply curve shift leftward because they increased per unit production costs.
Unions are another example.
The stronger the union, the more likely they will be able to increase wages. This leads to rising production costs, which decreases aggregate supply. An increase in productivity increases output without increasing production costs Changes in legal-institutional environment Taxes are seen by businesses as a cost. Therefore, when the government increases taxes, per unit production cost rises. It is usually costly for businesses to comply with government regulation.