2.3 Aggregate Supply Flashcards
What is Aggregate Supply?
The quantity of real GDP which is supplied at different price levels in the economy.
How does competition policy affect long run AS?
A more competitive market encourages firms to be more efficient and more productive so they are not competed out of business. Governments can use effective competition policy to stimulate efficiency in the economy.
How do technological advances affect long run AS?
If more money is spent on improving technology, the economy can produce goods in larger volumes or improve the quality of goods and services produced.
How do changes in relative productivity affect AS?
A more productive labour and capital input will produce a larger quantity of output with the same quantity of input.
How do changes in education and skills affect long run AS?
This improves the quality of human capital, so it is more productive and more able to produce a wider variety of goods and services. They may become more innovative and able to contribute to technological advances.
How do changes in government regulations affect long run AS?
Government regulation could limit how productive and efficient a firm can be if it is excessive. This is sometimes referred to as ‘red tape’
How do demographic changes and migration affect long run AS?
If there is a net inward migration and the majority of the population is of working age, the size of the labour force will increase, which means the economy can increase its output.
