Lesson 18 - Aggregate Supply Flashcards
What is Aggregate Supply?
Total amount that producers within a whole economy are willing + able to supply at a given price level within a given time
Describe AS in the short run
One factor of production is fixed
If a firm wants to increase output, it could employ more workers but not increase capital
Describe AS in the long run
All main factors of production are variable
Firm able to replace + renew capital due to length of time
More able to respond to changes in demand
What does the short run AS curve look like + why?
Standard diagonal curve
Higher G.P.L will encourage firms to employ more, increase output + spending on supplies
Lower prices, lower employment, output + purchases
What does the long run AS curve look like + why?
Straight vertical line 3/4 of distance along x axis
LRAS depends on available resources, capital, entrepreneurship + technology, which isn’t related to G.P.L
Which 3 factors can cause a shift in the AS curve?
Changes in resource/input costs
Changes in business taxes + subsidies
Supply Shocks
Which factors affect changing resource/input prices?
Wage costs p/unit output
Labour productivity (Higher, CP, lower costs)
Raw material + component costs
Energy costs
What does changing business taxes + subsidies consist of?
VAT, environmental charges, employment taxes
Change in subsidy size + scale
Business rates + costs of meeting regulations
Cost of imported components
How does a change in resource/input price induce a shift in the AS curve?
Increase: AS falls
Decrease: AS rises
How does changing business tax + subsidy induce a shift in the AS curve?
Tax: More - AS falls Less - AS rises
Subsidy: More - AS rises
What generally causes an inward shift in AS?
Increasing costs for a business
E.g., Unit labour costs
Raw material costs
Energy costs
What generally causes an outward shift in AS?
Rise in labour productivity
Decline in certain important expense E.g., Energy
