Aggregate supply

Aggregate Supply

The volume of goods and services produced in an economy within a given period of time.

Temporary Workers

Firms may opt to hire temporary workers to meet production demands.

Labor Costs

Average and marginal cost of labor per good produced will rise with increased production.

Short Run AS

Short run aggregate supply is likely to be elastic, meaning output is responsive to price changes.

Factors Influencing Short Run AS

Changes in cost of raw materials and energy, exchange rates, and tax rates can influence short run aggregate supply.

Long Run AS Curve

The long run aggregate supply curve is independent of the price level.

Determinants of Long Run AS

Long run aggregate supply is determined by the level of all factors of production (FOP) and the quality of technology.

Exceeding LRAS

In the short run, it is possible to exceed the maximum potential of long run aggregate supply by overworking factors of production.

Market Correction

Markets tend to correct themselves fairly quickly.

Keynesian LRAS

At high unemployment, the long run aggregate supply is elastic.

Employment Dynamics

Between points A and B on the LRAS, employment rises, leading to a scarcity of labor and higher wages.

Price and Output Relationship

After point B, an increase in price no longer affects output.

Factors Influencing Long Run AS

Technological advances, changes in relative productivity, education and skill levels, government regulation, demographic changes, and competition policy can influence long run aggregate supply.