In which situation might aggregate supply decrease?

The situation in which aggregate supply might decrease is when natural disasters disrupt production. Natural disasters, such as hurricanes, earthquakes, or floods, can destroy infrastructure, damage facilities, and hinder the availability of labor and raw materials. This disruption affects the overall productive capacity of the economy, leading to a decrease in aggregate supply, as firms are unable to produce goods and services efficiently. When production capabilities are diminished due to such external shocks, the overall supply available in the market contracts, causing shifts in the aggregate supply curve to the left.

In contrast, reductions in production costs (as seen in the first choice) typically lead to an increase in aggregate supply, as firms can produce more at lower costs. Additionally, increased availability of resources (in the third choice) also generally results in a higher aggregate supply, as firms have more inputs to utilize in their production processes. Lastly, government policies designed to incentivize production (as mentioned in the fourth choice) tend to enhance aggregate supply by encouraging firms to expand their output through subsidies, tax breaks, or deregulation.