Economics Aggregate Demand And Supply Questions Long
There are three main types of aggregate supply: short-run aggregate supply (SRAS), long-run aggregate supply (LRAS), and medium-run aggregate supply (MRAS).
1. Short-run Aggregate Supply (SRAS): SRAS represents the relationship between the price level and the quantity of goods and services that firms are willing and able to supply in the short run, assuming all input prices remain constant. In the short run, firms may adjust their production levels to meet changes in demand without making significant changes to their production processes or input prices. SRAS is upward sloping, indicating that as the price level increases, firms are willing to supply more output.
2. Long-run Aggregate Supply (LRAS): LRAS represents the relationship between the price level and the quantity of goods and services that firms are willing and able to supply in the long run, assuming all input prices are flexible. In the long run, all input prices, including wages and raw material costs, are fully adjustable. LRAS is a vertical line, indicating that changes in the price level do not affect the quantity of output supplied in the long run. Instead, changes in the long-run aggregate supply are driven by factors such as technological advancements, changes in the labor force, and capital accumulation.
3. Medium-run Aggregate Supply (MRAS): MRAS represents the relationship between the price level and the quantity of goods and services that firms are willing and able to supply in the medium run. The medium run is a transitional period between the short run and the long run, where some input prices may be sticky or partially adjustable. MRAS is upward sloping but not as steep as SRAS. It reflects the adjustment process of input prices and production levels as the economy moves towards its long-run equilibrium.
It is important to note that changes in aggregate supply can be influenced by various factors, including changes in input prices, technology, government regulations, and expectations. These factors can shift the aggregate supply curve to the right (increase in supply) or to the left (decrease in supply), impacting the equilibrium level of output and price level in the economy.