2.3 Aggregate Supply (AS) Flashcards
Define Aggregate Supply
The total output by firms at every price level
Why is the AS curve upward-sloping?
Firms are profit maximisers
What are the 2 factors that affect AS?
Changes in cost of production
Productivity/ efficiently
What are the components of cost of production
Land, Labour, Capital and Enterprise
Define Aggregate Supply
The total output by firms at every price level
Why is the AS curve upward-sloping?
Firms are profit maximisers. There is a positive relationship between price and output.
What are the 2 factors that affect AS?
Changes in cost of production, Productivity/efficiency
How does Land increase?
Remove green belt
Built upwards
Reclaim lost land
War
Deforestation
How does Labour increase?
Decrease the working age
Increase the retirement age
Increase immigration
How does Capital increase?
Research and Development
Improve technology
Subsidies
How does Enterprise increase?
Enterprise week
Subsidies (Technology and AI)
What is the difference between Long Run and Short Run?
The Long Run is where all factors of production are variable. The Short Run is where only 1 factor is variable.
What are the 3 main stages of the Keysian curve?
1- depression (SR)
2- room for growth
3- full capacity (LR)
What does the classical LRAS curve look like? Why?
Perfectly elastic. No spare capacity and the price is not influenced by the output
