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aggregate supply short long run
A LevelEconomics~4 min read
Overview
This lesson explores Aggregate Supply (AS), a fundamental concept in macroeconomics, distinguishing between its short-run (SRAS) and long-run (LRAS) perspectives. We will examine the factors influencing each curve and how they interact to determine an economy's output and price level.
Introduction to Aggregate Supply
Aggregate Supply (AS) represents the total output of goods and services that firms in an economy are willing and able to produce at different price levels over a given period. It's a crucial component of the Aggregate Demand-Aggregate Supply (AD-AS) model, which helps explain macroeconomic phenomena...
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Key Concepts
- Aggregate Supply (AS): The total quantity of goods and services that all firms in an economy are willing and able to supply at each price level.
- Short-Run Aggregate Supply (SRAS): The aggregate supply curve that shows the relationship between the aggregate price level and the quantity of aggregate output supplied, assuming some input prices (like wages) are fixed or sticky.
- Long-Run Aggregate Supply (LRAS): The aggregate supply curve that shows the relationship between the aggregate price level and the quantity of aggregate output supplied, assuming all input prices are flexible and the economy is at full employment.
- Potential Output (Yf): The maximum sustainable output an economy can produce when all resources are fully and efficiently employed; also known as full employment output.
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Exam Tips
- →Clearly distinguish between the reasons for the slopes of SRAS (sticky wages/prices) and LRAS (full resource employment, flexible prices).
- →Be precise when explaining shifts: identify the determinant, state the direction of the shift (left/right), and explain the impact on output and price level.
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