aggregate supply Flashcards
what are the two types of AS
long run and short run
what is aggregate supply
the quantity of goods and services that producers are willing to provide at a given price level
what does SRAS show
how much output the economy can produce in the short term at each price level
what factors affect SRAS
-cost of production (wages, raw material price, energy costs)
-business taxes
-government subsidies
-supply shocks
-laws
How do government subsidies help increase aggregate supply
The government give a business money, this decreases their costs and allows them to spend more on raw materials, this helps stimulate more production of products
How will an increase in wages affect AS
It will shift it to the left, because an increase in wages will increase the business’s total costs, meaning they are likely to decrease their production so as not to lose profit
How will a rise in raw material price affect AS
It will shift it to the left, because it will increase the business total costs
How will Government taxes affect AS
Taxes put onto certain products will increase the price per unit, meaning the business will produce less
What are supply shocks
External shocks which would affect how much a business can supply, for example a war in Ukraine means there is less supply of oil in the uk
Why is the LRAS curve vertical
Because it’s said that all resources are being used to full capacity, meaning an increase in price won’t cause an increase in output
what factors will shift LRAS to the right
-increase in productivity
-improvements in technology
-increased investment
-improved innovation and enterprise
How can a supply of new resources affect AS
The maximum output of the economy can be increased
