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In economics, aggregate supply is defined as the total supply of goods and services that firms in a national economy are willing to sell at a given price level.
Long-run in Economics
The long-run is the conceptual time period in which there are no fixed factors of production; all factors can be changed.
In the long-run, firms change supply levels in response to expected economic profits or losses.
In the long-run, only capital, labor, and technology affect the aggregate supply curve because at this point everything in the economy is assumed to be used optimally.
The long-run aggregate supply curve is static because it shifts the slowest of the three ranges of the aggregate supply curve.
The long-run aggregate supply curve is perfectly vertical, which reflects economists' belief that the changes in aggregate demand only cause a temporary change in an economy's total output .
In the long-run, there is exactly one quantity that will be supplied.
The long-run aggregate supply curve can be shifted, when the factors of production change in quantity.
For example, if there is an increase in the number of available workers or labor hours in the long run, the aggregate supply curve will shift outward (it is assumed the labor market is always in equilibrium and everyone in the workforce is employed).
Similarly, changes in technology can shift the curve by changing the potential output from the same amount of inputs in the long-term.
For the short-run aggregate supply, the quantity supplied increases as the price rises.
The AS curve is drawn given some nominal variable, such as the nominal wage rate.
In the short run, the nominal wage rate is taken as fixed.
Therefore, rising P implies higher profits that justify expansion of output.
However, in the long run, the nominal wage rate varies with economic conditions (high unemployment leads to falling nominal wages -- and vice-versa).
The equation used to calculate the long-run aggregate supply is: Y = Y*.
In the equation, Y is the level of economic production and Y* is the natural level of production.
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Long run analysis assumes wages and prices are fixes, which implies one level of efficient output, In the long run, firms have already made their decisions about optimal production and do not vary, In the long run, the factors that affect the production function do not influence GDP growth, and Long run analysis assumes all inputs are used optimally, which implies one level of efficient output
In the long run, GDP will respond to changes in the price level but not changes in inputs, In the long run, GDP will grow at a constant, unchanging rate, All of these answers, and The long-run level of potential GDP is not affected by changes in demand or prices
The labor market is always in equilibrium and the entire population is employed, Wages are sticky but no minimum wage regulations exist, Wages are sticky and minimum wage regulations exist, and The labor market is always in equilibrium and everyone in the workforce is employed
A change in the number of available workers or wage rate, A change in the number of labor hours or wage rate, A change in the labor market from full employment to less-than-full employment, and A change in the number of available workers or labor hours
An improvement in technology shifts supply to the left, increasing GDP, Technological progress leads to higher employment and prices, Technological progress leads to lower employment and prices, and An improvement in technology shifts supply to the right, increasing GDP