28 Aggregate supply

Question 1

Aggregate supply

Answer 1

Total supply of all goods and produced within an economy at overall price at a given time

Question 2

Short run aggregate supply

Answer 2

• one factor of production is fixed so the firms can react to changes in the price level

Question 3

Shifts in the SRAS

Answer 3

Base their production decisions on the costs of production
- wage rate changes, affecting the cost of employing workers
- raw materials costs change, affecting the costs of production
- taxation rates change, affecting profitability of firms
- productivity of workers or capital changes, more or less able to produce at same cost
- Exchange rate change, affects importing raw materials

Question 4

Long run aggregate supply

Answer 4

Can vary all factors of production so it is why maximum that can be produced with all the factors of production

Question 5

Shifts in LRAS

Answer 5

Changes in the quality or quantity of the factors of production
Land - new resources from land such as oil
- better techniques of extracting
Labour - more potential workers may join the labour market - baby boom or increase in retirement age
- better levels of education and training may make the workforce more efficient
Capital - more investment (overseas)
- technological change making it more productive
Enterprise - more start-up businesses through government schemes or legislation changes
- improvement in schools leading to better entrepreneurs