Aggregate Supply

• • Aggregate Supply is the total outproduced in an economy at any given price.
• Factors that affect Aggregate Supply


  • The taste (quality)
  • The size
  • Cost of resources
  • Costs of Production
  • Its availability (scarcity)
  • Tax/VAT
  • Oil price
  • Substitutes
  • Wages
• Aggregate Supply


  • Short Run: Assume FOP's are fixed (in terms of quality & quantity)
  • This is the movement along and is caused by a change in price
  • In the short run (SRAS), the AS curve is upward sloping because:
  • Prices of inputs (like wages) are sticky and do not adjust immediately to changes in the price level.
  • Higher prices can temporarily increase profit margins, leading firms to increase production.

  
• Aggregate Supply

  • Long Run:
  • In the long run (LRAS), the AS curve is vertical at the full-employment level of output (potential GDP) because:
  • In the long run, all prices, including wages, are flexible.
  • Output is determined by factors such as technology, resources, and institutions, not by the price level.