3. Aggregate Supply

Question 1

What is supply?

Answer 1

The willingness and ability of producers to supply a good or service at a given price.

Question 2

What is aggregate supply?

Answer 2

The total amount of goods and services firms in an economy are willing and able to supply at a given price.

Question 3

What do movements along the AS curve indicate?

Answer 3

Firms’ willingness to expand or contract production to gain profitability or avoid losses

Question 4

What affects SRAS?

Answer 4

Costs of production
W-ages
R-aw materials
I-mport prices
T-axes

Question 5

What affects LRAS?

Answer 5

Factors of production
Q2MCELL
Quantity & Quality of Capital, Enterprise, Land and Labour

Question 6

Why does the SRAS curve slope upwards?

Answer 6

it shows how in the short term firms can respond to changes in the market by increasing/decreasing supply.

Question 7

Why is the classical LRAS a straight line?

Answer 7

It shows that in the long term supply will reach a limit : all resources being fully allocated

Question 8

What is the Macro PPF?
What does it represent?

Answer 8

The production possibility frontier

The maximum that an an economy can produce with all resources fully allocated