Aggregate supply

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  • Created by: Bob
  • Created on: 02-04-13 23:45

Aggregate supply measures the volume of goods and services produced in an economy at a given price level

SRAS shows the total planned output when the price/ productivity of the factors of production are held constant

LRAS shows the planned output when the price/productivity of the factors of production can change. It shows the potential output of an economy and is linked to the production possibility frontier

The short run aggregate supply curve is upward sloping because higher prices for goods and services make output more profitable and businesses can expand their production by hiring less productive labour and other resources.

A change in the price level bought about by a shift in A.D causes a movement along a supply curve. 

If demand increases, there is a expansion of SRAS

If demand decreases there is a contraction of SRAS

Main cause for shift in supply curve= change in bussiness cost:

unit labour costs- wage costs adjusted for productivity. A rise could be due to firms paying higher wages or fall

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