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AGGREGATE SUPPLY
volume of g and s produced w/in economy at a given price level
indicates the ability of an economy to produce g and s and shows relationship between the real GDP and the general price levels
SHORT RUN AS CURVE
likely to be elastic
increase in output by firms is likely to lead to an increase in costs which leads to a rise in prices as they pass these costs onto consumers
but, bc the factor prices are constant, the increase in prices will be relatively small
if demand falls firms will react by cutting prices in an attempt to stimulate sales
but, they will not be able to achieve much of a reduction bc of constant prices and an unwillingness in the short run to lay off workers
MOVEMENT IN AS
change in price level will lead to a movement along the curve
contraction or expansion
SHIFT IN AS
shift in the curve is caused by a range of other factors
these factors depend on whether its the short or long run AS curve
RELATIONSHIP BETWEEN SHORT AND LONG RUN
short run- period of time when at least one FOP is fixed
on AS curve, in short run, money wage rates, factor prices and state of tech are fixed; change causes a shift of the curve
long run- all FOPs are variable
