Long Run AS

• LRAS curves show the productive potential of an economy. Determined by all factors of production.
• Classical economics assumes that in the long run, wages and prices are flexible therefore the LRAS curve is vertical.
• The Keynesian view assumes that at low output, aggregate supply is very elastic but once it hits the optimal output level, it becomes inelastic.
• LRAS curve shifts because:

  1. Technology advances
  2. Changes in education and skills
  3. Change in government regulation
  4. Demographic changes and migration
  5. Economic incentives
  6. Enterprise and risk taking
  7. Competition policy