How do expectations about future prices affect aggregate supply?

Expectations about future prices play a significant role in shaping aggregate supply, particularly through the behavior of businesses regarding production and pricing strategies. When businesses anticipate that future prices for their goods or services will be higher, they may choose to reduce their current supply. This is done in anticipation of higher profits that can be achieved by selling their products at those future increased prices.

By limiting current supply, businesses aim to create a scarcity of their products, which can drive up the price when demand remains constant. This strategy is not only about maximizing profit margins but also involves managing inventory levels and fluctuations in market demand. Therefore, the expectation of higher future prices incentivizes businesses to act in a way that aligns with their profit-maximizing objectives, leading them to hold back supply rather than increasing it immediately.

In contrast, the other choices do not accurately reflect the dynamics of how price expectations influence aggregate supply. For instance, while businesses can increase supply immediately in response to demand or cost changes, this is not the specific behavior driven by price expectations mentioned in the question. Similarly, stating that expectations have no effect on aggregate supply disregards a fundamental aspect of economic behavior that anticipates future market conditions. Lastly, the idea that expectations would encourage businesses to lower prices contradict