1.3 Aggregate Supply Flashcards
1
Q
What is aggregate supply?
A
The total output of goods and services that firms in an economy are willing and able to supply at a given price level, in a given period of time
2
Q
What is the short run?
A
The period of time when prices of factor inputs are fixed (eg. wages)
3
Q
Why is the SRAS upwards sloping?
A
An increase in price level will cause an increase in firms’ profits thus they can afford to increase production. This causes an extension of aggregate supply
4
Q
What causes the SRAS to shift
A
Changes in costs of production for firms
5
Q
What does the LRAS show?
A
The potential or full capacity level of output
6
Q
What can cause the LRAS to shift?
A
- Changes in the size of the workforce
- Technological progress
- Improvements in education and skills
- Government policy towards businesses
- Increase geographical and occupational mobility of labour
