2.3.1 - The characteristics of AS Flashcards
Define Aggregate supply
The total supply of goods/services produced within an economy at a given price level at a given time.
Why is the AS curve upwards sloping.
● The AS curve is upward sloping due to two reasons
o The aggregate supply is the combined supply of all individual supply curves in an economy which are also upward sloping.
o As real output increases, firms have to spend more to increase production e.g. wage bills will increase
Increased costs result in higher average prices.
Movement and Shift on AS
● Movement - Caused by a change in the average price level in an economy.
● Shift - Caused by changes in the conditions of the supply in the macro-economy (changes in the costs of production for firms).
SRAS and LRAS
Short run aggregate supply(SRAS) - This refers to the effects if changes in the cost of production in the economy. It will affect as in the short run.
Long run aggregate supply(LRAS) - This refers to the quality and quantity of as it deals with the long term impact on the productive capacity of the economy.
