2.3 aggregate supply Flashcards
how can there be a movement on the AS curve
A change in price level will lead to a movement along the curve
how can there be a shift of the AS curve
a shift in the curve is caused by a range of other factors
how does exchange rates effect SRAS
A weaker pound will lead to an increase in the price of imports and this will cause SRAS to decrease as production becomes more
expensive
how do indirect taxes effect SRAS
Taxes increase the cost of production and thus they cause a fall in SRAS
how does costs of raw materials effect SRAS
An increase in the cost of raw materials and energy increases the cost of production. This means the SRAS curve will shift left as it will cost more to make the same amount of goods and therefore businesses will only produce this amount of goods if prices rise
whats a supply side shock
when there are significant changes in any of these factors.
how does Technological advances affect LRAS
Increased investment in technology, whether this be new technology or current
technology, will increase the LRAS as it means that more goods can be produced
because there are more machines etc.
how does productivity affect LRAS
The more productive the economy is, the
more that will be produced with the given resources. Productivity depends on a range
of factors, such as efficiency, skill of labour and technology.
how does education and skills affect LRAS
A more skilled workforce will be more
employable and work quicker and more efficiently within their jobs, so the output per worker will increase, which will shift the LRAS to the right
how does government policies affect LRAS (2 ways)
They can increase the size of the workforce by reducing benefits, which will encourage those living off benefits to find a job
In general, high regulation on businesses will limit LRAS as it will increase costs and the time taken to undertake tasks, which will reduce output.
how does immigration affect LRAS
If immigration is higher than emigration,
the population will grow and so therefore there will be more workers which will
increase the LRAS
how does competition policies affect LRAS
The government can promote competition between businesses and markets which will force them to improve the quality of their goods or lower prices. In order for businesses to do this and still make a profit, they have to improve their efficiency and this efficiency will mean that more goods and services can be produced, so LRAS will increase. However, less competition can sometimes be beneficial if it encourages investment and innovation.
what does commodity mean
a raw material or primary agricultural product that can be bought and sold
