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Defining sras and lras

In the Clear It Up feature titled “Why does AS cross potential GDP?” we differentiated between short run changes in aggregate supply which are shown by the AS curve and long run changes in aggregate supply which are defined by the vertical line at potential GDP. In the short run, if demand is too low (or too high), it is possible for producers to supply less GDP (or more GDP) than potential. In the long run, however, producers are limited to producing at potential GDP. For this reason, what we have been calling the AS curve, will from this point on may also be referred to as the short run aggregate supply (SRAS) curve    . The vertical line at potential GDP may also be referred to as the long run aggregate supply (LRAS) curve    .

Key concepts and summary

The upward-sloping short run aggregate supply (SRAS) curve shows the positive relationship between the price level and the level of real GDP in the short run. Aggregate supply slopes up because when the price level for outputs increases, while the price level of inputs remains fixed, the opportunity for additional profits encourages more production. The aggregate supply curve is near-horizontal on the left and near-vertical on the right. In the long run, aggregate supply is shown by a vertical line at the level of potential output, which is the maximum level of output the economy can produce with its existing levels of workers, physical capital, technology, and economic institutions.

The downward-sloping aggregate demand (AD) curve shows the relationship between the price level for outputs and the quantity of total spending in the economy. It slopes down because of: (a) the wealth effect, which means that a higher price level leads to lower real wealth, which reduces the level of consumption; (b) the interest rate effect, which holds that a higher price level will mean a greater demand for money, which will tend to drive up interest rates and reduce investment spending; and (c) the foreign price effect, which holds that a rise in the price level will make domestic goods relatively more expensive, discouraging exports and encouraging imports.

Problems

Review the problem shown in the Work It Out titled "Interpreting the AD/AS Model." Like the information provided in that feature, [link] shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia.

Price level: ad/as
Price Level AD AS
110 700 600
120 690 640
130 680 680
140 670 720
150 660 740
160 650 760
170 640 770
  1. Plot the AD/AS diagram from the data shown. Identify the equilibrium.
  2. Imagine that, as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium.
  3. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?
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The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as shown in [link] .

Price level: ad/as
Price Level AD AS
100 700 200
120 600 325
140 500 500
160 400 570
180 300 620
  1. Plot the AD/AS diagram. Identify the equilibrium.
  2. Would you expect unemployment in this economy to be relatively high or low?
  3. Would you expect concern about inflation in this economy to be relatively high or low?
  4. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.
  5. How will the shift in AD affect the original output, price level, and employment?
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Santher is an economy described by [link] .

Price level: ad/as
Price Level AD AS
50 1,000 250
60 950 580
70 900 750
80 850 850
90 800 900
  1. Plot the AD/AS curves and identify the equilibrium.
  2. Would you expect unemployment in this economy to be relatively high or low?
  3. Would you expect prices to be a relatively large or small concern for this economy?
  4. Imagine that input prices fall and so AS shifts to the right by 150 units. Identify the new equilibrium.
  5. How will the shift in AS affect the original output, price level, and employment?
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Questions & Answers

price is tantalisingly the only factor determining demand which can be analyze the view
Sinit Reply
Price is tantalizingly the only factor determining demand which can be analyze the view
Sinit
what is scarcity
Sharkdanny Reply
the state of being scarce or in short supply; shortage.
Abdirahin
what is meant by an abnormal demand curve?
Samuel Reply
what is microeconomics
Berun Reply
micronomics can be define as that part of Economics that deals with small scale business. e.g. House hold stuff
Amodu
Micro economics is the study of individuals, households and firms' behavior un decision making and allocation of resources
Christian
what is underemployment
Xornam Reply
It is the situation where the available resources are not used to it optimum
Bless
state the law of diminishing returns
Bless
Bless, the law of diminishing returns state that one point, adding a single worker will result in a decrease of production.
David
it is a situation where by people are employ but work under their potential
Akua
David please go into details kk
Bless
Akua pls when you say people alone? what about facilities?
Bless
Definition of underemployment. 1 : the condition in which people in a labor force are employed at less than full-time or regular jobs or at jobs inadequate with respect to their training or economic needs
Boahen
OK that is good
Set
I am new here
Taimoor
what does law of demand says?
Samuel
with a diagram explain fairy elastic demand
Samuel
comprehensive answer for public finance is the money that a government has available to spend from taxes and borrowing.
wilflay Reply
what then comprises of public opinion
Raphael
what is macro economics
SAGAR Reply
Definition of demand and supply
oyebanji Reply
whatd is name of economic scholars defined classic view
Ahmed Reply
Whole Classical view is based on J.B.Say's Law of Marker demand
abhinav
the science of economic has both positive and normative aspect,discuss.
Mkiwa Reply
simplified definition of a production possibility curve
Rose Reply
This is call the PFF curve .
Sumowoui
A country can produce lots of guns, or lots of butter. But, they cannot produce lots of both. The solution to this is called comparative advantage. Comparative advantage is that different countrys specialize in different areas, and then trade.
David
this is call the. pff curve
Murali
It is defind as a curve which shows various combinations of two goods produced with given resources
Shahid
it means a country with a given level of technology and available resources can produce two goods only if the technology or resources are efficiently utilize. In d process of utilization you will produce one goods more than the other that is why the downward slope of a PPC curve indicates opp cost
Odion
Shows all the possible combination of two goods or services
Christian
it is d intersection of two different variables
Odion Reply
what is equilibrium ?
James Reply
the quantity of demanded for a good is equal to its quantity supplied. Qdd=Qss
Podol
in economics, an equilibrium is situation in which : 1. qd=qd 2.no tendency or quantity to change 3. the market just clears without surplus/shortage
Podol
it is the intersection between two variables. Because you did not specify the equilibrium you talking about is it consumer or market forces
Odion
A state in which opposing forces or influences are balanced
Preeti
Equilibrium refers to the economic situation where supply and demand for a certain goods and services in market is equal, which represents a stable market price to purchase and sell.
Preeti
curve d and s intersection
Podol
yes jahan par demand and supply intersect karte hai wahi par equilibrium hota hai
Preeti
Equilibrium is when two variables intersect.
Akolo
equilibrium is a point where demand and supply meet with out shortages or surplus.
Sumowoui
Hmm scholars
Odion
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Mansur
Micro and macro
Mansur
What do you think?
Yussif
can someone explain demand and supply
Mansur
demand is a quantity of a commodity which could be offer for sales at a particular price. !!!!...And supply is also a quantity of a commodity which could be brought by a consumer at a given price and time.
Rosemary
m also new want to know more about economics
Gift
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Ravi
Economic is the study of scarcity, Desires and Choices Elaborate the Statement
Shahid Reply
hi
SAGAR
what is economics
SAGAR
what is economic
SAGAR
economics is a study of how people use their limited resources to try to fulfill their unlimited wants and involves alternative or choices.
Podol
economic is the social science which study behaviour as a relationship between end and scares which have alternative uses
aminu
scarcity( land, labour, capital and enterprise) -occurs as human wants are greater than the available resources, but the most important concept in economics is if there is no scarcity , then there will be no economics study. choice - when scarcity exist , choices are made out of the available alt
Podol
Economic is the study of mankind in ordinary business of life it examines that part of life which most closely connected with the attainment and with the use of material requisites of well being
Shahid
economics is a subject initiated by late Adam Smith
sagar
Hello
Ansafol
It Deals with rational allocation of scarce goods n service
Abraham
hey how should I undestand economics
Teezykay
what is production possibility curve
Gift Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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