Google
Sunday 
July 22, 2018 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
PAYMENT FLOW: In the circular flow, the clockwise transfer of money in payment for the counter-clockwise physical flow of goods and services. The payment flow is the monetary payment for goods and services received by the household sector from the business sector through product markets and the monetary payment for resource services obtained by the business sector from the household sector through factor markets.

Visit the GLOSS*arama


AGGREGATE SUPPLY SHIFTS:

Changes in the aggregate supply determinants shift both the short-run aggregate supply curve and the long-run aggregate supply curve. The mechanism is comparable to that for market supply determinants and market supply. There are two options--an increase in aggregate supply and a decrease in aggregate supply. An increase in resource quantity or quality or a decrease in resource price shifts one or both of the aggregate supply curves to right. A decrease in resource quantity or quality or an increase in resource price shifts one or both of the aggregate supply curves to left.
Shifting the SRAS Curve
Shifting the SRAS Curve

Shifting the LRAS Curve
Shifting the LRAS Curve

To see how this works, consider the short-run aggregate supply curve and long-run aggregate supply curve presented in the exhibit to the right. The short-run aggregate supply curve, abbreviated SRAS, is in the top panel and the long-run aggregate supply curve, abbreviated LRAS, is in the bottom panel.
  • The short-run aggregate supply curve is positively sloped and captures the specific one-to-one relationship between the price level and real production.

  • The long-run aggregate supply curve is vertical at the full-employment level of production, indicating that real production is independent of the price level.
The ceteris paribus factors, that is, the aggregate supply determinants, are assumed to remain constant when these curves are constructed. Similar to other determinants, the aggregate supply determinants shift these two aggregate supply curves. A change in the determinants can either increase or decrease one or both of the aggregate supply curves.
  • Short-Run Aggregate Supply: Consider first the short-run aggregate supply curve. An increase in short-run aggregate supply is illustrated by a rightward shift in the SRAS curve in the top panel. A decrease in short-run aggregate supply is illustrated by a leftward shift. Click the [Increase in SRAS] or [Decrease in SRAS] buttons for a demonstration.

  • Long-Run Aggregate Supply: Now consider the long-run aggregate supply curve. An increase in long-run aggregate supply is illustrated by a rightward shift in the LRAS curve in the bottom panel. A decrease in long-run aggregate supply is illustrated by a leftward shift. Click the [Increase in LRAS] or [Decrease in LRAS] buttons for a demonstration.
What does it mean to have an increase in supply? It means that for every price level, the business sector is willing and able to supply more real production. A decrease in supply is the exact opposite. For every price level, the business sector is willing and able to supply less real production.

Shifts of the short-run or long-run aggregate supply curves, brought about by such things as education or technology, an increase in the size of the population or the capital stock, or changes in wages or energy prices, can be the source of disequilibrium in the aggregate market. Such disequilibrium then results in changes in the price level. The key is that aggregate supply determinants CAUSE shifts of the aggregate supply curves which CAUSE disequilibrium which then CAUSES changes in the price level.

This suggests an important difference between two related changes--a change in aggregate supply and a change in real production.

  • A change in aggregate supply is any shift of either of the aggregate supply curves. With this change, the entire curve shifts to a new location. A change in aggregate supply is caused by a change in the aggregate supply determinants. This is comparable to a change in supply in the analysis of the market.

  • A change in real production is a movement along a given aggregate supply curve. This change involves the movement from one point on the existing curve to another point on the SAME curve. The curve does not move. A change in real production is caused by a change in the price level, and ONLY a change in the price level! This is comparable to a change in quantity supplied in the analysis of the market.

    While a change in real production, as a movement along the curve, applies in principle to both short-run and long-run aggregate supply curves, because real production does not change in the long run, from a practical standpoint, a change in real production primarily applies to the short-run aggregate supply curve.

<= AGGREGATE SUPPLY INCREASE, SHORT-RUN AGGREGATE MARKETALLOCATION =>


Recommended Citation:

AGGREGATE SUPPLY SHIFTS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: July 22, 2018].


Check Out These Related Terms...

     | aggregate supply determinants | change in aggregate supply | change in real production | slope, aggregate supply curve | resource quantity, aggregate supply determinant | resource quality, aggregate supply determinant | resource price, aggregate supply determinant | wages, aggregate supply determinant | energy prices, aggregate supply determinant | technology, aggregate supply determinant | capital stock, aggregate supply determinant | aggregate demand determinants |


Or For A Little Background...

     | aggregate supply | short-run aggregate supply | long-run aggregate supply | short-run aggregate supply curve | long-run aggregate supply curve | gross domestic product | price level | real production | GDP price deflator | real gross domestic product | production cost |


And For Further Study...

     | AS-AD analysis | aggregate market | business cycles | circular flow | Keynesian economics | monetary economics | flexible prices | inflexible prices | short-run aggregate supply and market supply | aggregate market shocks |


Search Again?

Back to the WEB*pedia


APLS

PURPLE SMARPHIN
[What's This?]

Today, you are likely to spend a great deal of time looking for the new strip mall out on the highway looking to buy either a birthday gift for your aunt or a pair of leather sandals that won't cause blisters. Be on the lookout for florescent light bulbs that hum folk songs from the sixties.
Your Complete Scope

This isn't me! What am I?

The first "Black Friday" on record, a friday marked by a major financial catastrophe, occurred on September 24, 1869 -- A FRIDAY -- when an attempted cornering of the gold market induced a financial crises and economy-wide depression.
"You can't build a reputation on what you are going to do."

-- Henry Ford, automaker

DCF
Discounted Cash Flow
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2018 AmosWEB*LLC
Send comments or questions to: WebMaster