1. Aggregate Supply: Introduction and Determinants
AP Economics
Mr. Bernstein
Module 18:
Aggregate Supply: Introduction and Determinants
March 10, 2015

2. AP Economics Mr. Bernstein
Aggregate Supply: Intro and Determinants
Objectives - Understand each of the following:
How the aggregate supply curve illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy
What factors can shift the aggregate supply curve
Why the aggregate supply curve is different in the short run from in the long run

3. AP Economics Mr. Bernstein
Aggregate Supply
The relationship between aggregate price level demand and the aggregate quantity of output supplied
In the short run,
SRAS is upward sloping
In the long run,
LRAS is vertical at
potential GDP

4. AP Economics Mr. Bernstein
The Short-Run Aggregate Supply Curve
If the price of a unit of output is rising faster than production costs, supply will rise
Why? Some input
prices are sticky,
particularly wages,
so as prices rise
profits go up
in the short run

5. AP Economics Mr. Bernstein
AS Curve Shifters
D Commodity Prices
D Nominal Wages
D Productivity
(Increase in AS is
a shift “right” and
decrease in AS is
a shift “left”)

6. AP Economics Mr. Bernstein
The Long-Run Aggregate Supply Curve
What if wages were flexible and followed prices?
Prices would rise, so would wages, and supply would not move
In Long Run, wages
are flexible, so
LRAS is vertical
At Potential GDP YP

7. AP Economics Mr. Bernstein
From Short-Run to Long-Run Supply Curve
AD/AS model predicts SRAS will shift until it
intersects with LRAS
at YP
Example: labor