Download In economics, the aggregate supply shifts and shows

In economics, the aggregate supply shifts and shows how much
output is supplied by firms at different price levels.
LEARNING OBJECTIVE [ edit ]
Explain shifts in aggregate supply and their impact on the economy
KEY POINTS [ edit ]
he aggregate supply curve shows how much output is supplied by firms at different price levels.
The short-run aggregate supply curve is affected by productioncosts including taxes, subsides,
price of labor (wages), and the price of raw materials.
The long-run aggregate supply curve is affected by events that change the potential output of the
economy.
The short-run aggregate supply curve is affected by production costs. The long-run aggregate
supply curve is affected by events that change the potential output of the economy.
The short-run aggregate supply curve is affected by production costs. The long-run aggregate
supply curve is affected by events that change the potential output of the economy.
TERM [ edit ]
supply shock
An event that suddenly changes the price of a commodity or service. It may be caused by a sudden
increase or decrease in the supply of a particular good.
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Aggregate Supply
In economics, aggregate supply is defined as the total supply of goods and services that firms
in a national economy produce during a specific period of time. It is the total amount of
goods and services that firms are willing to
sell at a specific price level in the economy.
Shift in Aggregate Supply
The aggregate supply curve may shift labor
marketdisequilibrium or labor
market equilibrium. If labor or
anotherinput suddenly becomes cheaper,
there would be a supply shocksuch that
supply curve may shift outward, causing
the equilibrium price in to drop and the
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equilibrium quantity to increase.
Supply Shift
A supply shock could be caused by changing regulations or a sudden change in the price of an input,
among other reasons.
During the short-run, there is one fixed factor of production, usually capital. However, the
fixed factor does not stop the curve's ability to shift outward. When the curve shifts to the
right, it causes an increase in the output and a decrease in theGDP at a given price. Examples
of events that cause the curve to shift to the right in the short-run include a decrease in the
wage rate, an increase in physical capital stock, and technological progress.
In the long-run only capital, labor, and technology affect the aggregate supply curve because
at this point everything in the economy is assumed to be used optimally. The long run curve
is often seen as static because it shift the slowest. The long-run aggregate supply curve is
vertical which shows economist's belief that changes in aggregate demand only have a
temporary change on the economy's total output. Examples of events that shift the long-run
curve to the right include an increase in population, an increase in physical capital stock, and
technological progress.
Reasons for Shifts
The short-run aggregate supply curve is affected by production costs including
taxes, subsidies, price of labor (wages), and the price of raw materials. All of these factors will
cause the short-run curve to shift. When there are changes in the quality and quantity of
labor and capital the changes affect both the short-run and long-run supply curves. The longrun aggregate supply curve is affected by events that change the potential output of the
economy. Changes in short-run aggregate supply cause the price level of the good or service to drop
while the real GDP increases. In the long-run the prices stabilize and the price level of the
good or service increase in response to the changes.