Aggregate Supply -

Aggregate Supply - 

• Aggregate Supply 
• the level of real GDP that firms will produce at each level 
• the determinants are the only things that will cause a shift 
• Long-Run of Aggregate Supply (LRAS)
• vertical at full employment \
• period of time where input prices are completely flexible and adjust to changes in the price level 
• in the long run, the level of real GDP supplied is independent of the price level; stable the entire time
• marks the level of employment, analogous to PPC
• Short-Run Aggregate Supply 
• period of time where input prices are sticky and do not adjust to changes in the price level 
• in the short run, the level of GDP supplied is directly related to the price level 
• because input prices are sticky in the short run, the SRAS curve is upward slope 
• key to understanding shifts is per unit cost of production 
• (Total Input Cost)/(Total Output)
• Determinants of SRAS
• Input Prices
• Domestic Resource Prices
• wages (75% of business costs)
• cost of capital 
• raw material (commodity prices)
• Foreign Resource Prices
• strong $ = lower foreign resource prices
• weak $ = higher foreign resource prices
• Market Prices
• monopolies and cartels that control resources also control the price of those resources
• increase in resource prices: SRAS left 
• decrease in resource prices: SRAS right 
• Productivity 
• (Total Output)/(Total Input)
• more productivity - lower unit production cost 
• lower productivity - higher unit production cost 
• Legal Institution Environment
• taxes and subsidies
• taxes ($ to govt) on business increase per unit cost of production (SRAS left)
• subsidies ($ from government) to business reduce per unit production cost (SRAS right)
• Government Regulation
• creates a cost of compliance = SRAS left 
• deregulation reduces compliance costs = SRAS right