2.3
AS CHARACTERISTICS
THE AS CURVE
AS - volume of goods and services that producers are willing to supply at different
price levels
SHORT RUN AS
upwards sloping
higher prices increases profit
margins, allowing producers to
expand production
prices of inputs (wages) do not
adjust immediately in response to
change in price level
LONG RUN AS
vertical at full employment level of
output
in the long run all prices and
wages are flexible
output is determined by other
factors, not price level, e.g
technology
SHIFT VS MOVEMENT
MOVEMENT
caused by change in price level
2.3 1
, SHIFTS
SRAS
right
increase in AS
e,g decrease in production costs, tech advancement, increase in
productivity
left
decrease in AS
increased production costs, supply shock, reduced productivity
LRAS
right
long term economic growth
increased capital stock, technological progress, or an increase in the
labour force
left
decrease in productive capacity
destruction of capital or a decrease in the labour force
FACTORS INFLUENCING SHORT RUN AS
SUPPLY SHOCKS = when one factor significantly changes
SRAS SHIFTS DUE TO THE FOLLOWING FACTORS
CHANGES IN COST OF RAW MATERIALS AND ENERGY
affects production costs
higher costs = higher cost of production, shift to left
lower costs = lower cost of production, shift to right
2.3 2
AS CHARACTERISTICS
THE AS CURVE
AS - volume of goods and services that producers are willing to supply at different
price levels
SHORT RUN AS
upwards sloping
higher prices increases profit
margins, allowing producers to
expand production
prices of inputs (wages) do not
adjust immediately in response to
change in price level
LONG RUN AS
vertical at full employment level of
output
in the long run all prices and
wages are flexible
output is determined by other
factors, not price level, e.g
technology
SHIFT VS MOVEMENT
MOVEMENT
caused by change in price level
2.3 1
, SHIFTS
SRAS
right
increase in AS
e,g decrease in production costs, tech advancement, increase in
productivity
left
decrease in AS
increased production costs, supply shock, reduced productivity
LRAS
right
long term economic growth
increased capital stock, technological progress, or an increase in the
labour force
left
decrease in productive capacity
destruction of capital or a decrease in the labour force
FACTORS INFLUENCING SHORT RUN AS
SUPPLY SHOCKS = when one factor significantly changes
SRAS SHIFTS DUE TO THE FOLLOWING FACTORS
CHANGES IN COST OF RAW MATERIALS AND ENERGY
affects production costs
higher costs = higher cost of production, shift to left
lower costs = lower cost of production, shift to right
2.3 2
