How is the Aggregate Supply curve affected by improvements in efficiency?

Improvements in efficiency lead to a rightward shift of the Aggregate Supply curve. This is because efficiency enhancements typically result in lower production costs and higher output levels for firms. When firms can produce more at the same cost or produce the same amount at a lower cost, the overall capacity of the economy to supply goods and services increases. This increase in productive potential translates to a greater quantity of goods and services supplied at every price level, thereby shifting the Aggregate Supply curve to the right.

In essence, the rightward shift signifies that the economy can sustain higher levels of output without triggering inflation, reflecting a more productive use of resources. This concept is crucial for understanding the dynamics of supply-side improvements and their impact on economic growth.