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AGGREGATE SUPPLY (AS)
Definition: AS measures the volume of goods and services produced
within the economy at a given price level
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g
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LRASshows total planned output when both prices and average wage rates can
change – it is a measure of a country’s potential output and the concept is
linked to the production possibility frontier
In the long run, the LRAS curve is assumed to be vertical (i
...
it does not change
when the general price level changes)
In the short run, the SRAS curve is assumed to be upward sloping (i
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it is
responsive to a change in aggregate demand reflected in a change in the general
price level)
SHIFTS IN THE SRAS CURVE

The main thing that causes shifts in the SRAS curve are changes in
business costs:
-Changes in unit labour costs
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Government taxation and subsidies: EX
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-The price of imports
LRAS :In the long run, the ability of an economy to produce goods and services to
meet demand is based on thestate of production technology and the availability
and quality of factor inputs
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For a developed economy, this
is the single largest component of aggregate supply
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These investment goods are significant in that their use
adds to capacity, and increases the economy’s ability to supply private
consumer goods in the future
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Many private firms such as
those in construction, IT and pharmaceuticals, rely on contracts to
supply to the public sector
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TYPES OF AS CURVE:
BASIC AS CURVE-

CLASSICAL AS CURVE:

The Classical view of real output was that it was fixed at a particular
level
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A change in AD on a classical AS curve only causes a change in the price level, not
on real output
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SRAS (Short Run Aggregate Supply)
Short run aggregate supply shows total planned output when prices can
change but the prices and productivity of factor inputs e
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wage rates and the
state of technology are held constant
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e
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It differs from the Short-Run
Aggregate Supply (SAS) in that no input prices are assumed to be constant
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Since the LRAS is potential output it is shifted by the factors which affect
potential output, such as:

-available resources
-capital
-entrepreneurship
- technological developments
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Aggregate Supply Summary:
Unlike the aggregate demand curve, the aggregate supply curve does not
usually shift independently
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Instead, the equation for aggregate supply contains
only terms derived from the AS-AD model

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