top of page

Overview

The aggregate supply refers to the ability of the economy to produce goods and services.

Aggregate supply is positively related to the price level. This is because a price rise will make more profitable sales and encourage organisations to increase their output.

Economists sometimes distinguish between

short-run aggregate supply (SRAS) and

long-run aggregate supply (LRAS).

Short-run aggregate supply is the output that will be supplied in a period of time when the prices of factors of production (inputs, resources) have not had time to adjust to changes in aggregate demand and the price level.


The short-run aggregate supply curve slopes up from left to right. As the price level rises, producers are willing and able to supply more goods and services.

Possible reasons for this positive relationship:

The profit effect:

As the price level increases, the price of factors of production such as wages do not change. So the price level rises, the gap between output and input prices widens and the amount of profit increases.

The cost effect:

Although the wage rates and raw material costs remain unchanged in the short run, average costs may rise as output increases.

Long-run aggregate supply is the output that will be supplied in the time period when the prices of factors of production have fully adjusted to changes in aggregate demand and the price level.

The long-run aggregate supply curve shows the relationship between real GDP and changes in the price level when there has been time for input prices to adjust to changes in aggregate demand.

We distinguish between two types of long-run supply curves (LRAS)

The Keynesian LRAS curve

Keynesians LRAS curve are perfectly elastic at low rates of output, then upward sloping over a range of output and finally perfectly inelastic.

The classical LRAS curve

< Back
Untitled design(5).png

Economics notes  on

Keynesians LRAS curve

Perfect for A level, GCSEs and O levels!

👑Subscribe to the Economics Study Pack and Download economics notes in PDF and EDITABLE versions!

Economics Study Pack
factors influencing demand.jpg
bottom of page