1.3 Aggregate Supply Flashcards
What are the main components of Aggregate Supply?
The total supply of all goods and services produced within an economy at a given overall price in a given time period. The Toal output depends on factors that are input into the production process.
What is the short run aggregate?
Goods and services that firms are willing and able to produce at a given price level in the short run. In the short run at least 1 factor of production is fixed meaning that firms can react to changes in the price level.
What can change the shift in SRAS?
Firms base production decisions on the cost of production therefore shifts may be experienced if :
Wage rates change affecting cost of employing workers
Raw materials cost more affecting production costs
Taxation rates alter affecting profitability of firms
Productivity of workers/capital changes meaning firms not able to produce goods at same cost
Exchange rates change affecting import of raw materials
What causes the SRAS curve to shift to the left/ right?
If costs increase or productivity decreases = left shift
If costs decrease or productivity increases = right shift
What is long run aggregate supply?
The maximum that can be produced with all the factors of production in an economy. This means that since all factors of production are in full use, it won’t matter what the price level is the quantity of goods and services being produced will always be the same.
What can change the LRAS?
The same factors that would change a PPC curve affect a LRAS curve. A change in either the quality or quantity of the factors of production will affect a LRAS curve.
What are the four main factors which can affect quantity or quality?
Land: new resources from the land may be found or better techniques discovered for extracting resources
Labour: more workers join labour market due to a baby boom or an increase to retirement age or better levels of education/ training make workforce more efficient
Capital: more investment from overseas maybe or more technological changes leading to more productivity
Enterprise: More start up businesses due to govt schemes/ legislation changes or improvement in education leading to better entrepreneurs.
