2.3.1 The characteristics of AS

Question 1

AS curve

Answer 1

Aggregate supply shows the quantity of real GDP which is supplied at difference price levels in the economy.
o The SRAS curve is upward sloping because at a higher price level, producers are willing to supply more because they can earn more profits.

Question 2

Movements vs Shifts: AS

Answer 2

Movements: Only changes in the price level, which occur due to changes in AD, lead to movements along the AS curve.
- If AD increases, there is an expansion in the SRAS, from Y1 to Y2. If AD falls, there is a contraction in SRAS, from Y1 to Y3.
Shifts: The SRAS curve shifts when there are changes in the conditions of supply, any of the factors which affect SRAS.

Question 3

Short run AS curve SRAS

Answer 3

The short run is the period of time when at least one factor of production is fixed.
o The short run aggregate supply curve (SRAS) only covers the period immediately after a change in the price level. It shows the planned output of an economy when prices change, whilst the cost of production and productivity of the factor inputs are kept constant. A change in one of these will result in the shift of the curve.
o The curve is upward sloping because supply is assumed to be responsive to a change in AD, which is reflected in the price level.

Question 4

Long run AS curve LRAS

Answer 4

In the long run all factors of production are variable.
o The long run aggregate supply curve (LRAS) shows the potential supply of an economy in the long run. This is when prices, and the costs and productivity of factor inputs, can change. Similarly to the PPF, it can show the economy’s productive potential.
o The curve is vertical in the classical model, because supply is assumed not to change as the price level changes.