Long term supply curve (video) | Khan Academy
A. shows the relationship between the overall price level and the level of total demand. .. The slope of the short-run aggregate supply curve shows that. Hence, the short-run supply curve of a firm coincides with that portion of the . The position of the dotted LMC and LAC curves shows that they have been shifted. A supply curve is a representation of the relationship between the price of a good or service and the quantity supplied for a given period of time.
So, let's say in the very short term, if you wanted to get the person in your town, who likes their Now, to get the next person to part with their Honda Civic, they might like is a little bit more. You'll have to spend a little bit more, and so on and so forth, and so we'll call this the short term supply curve.
Aggregate demand and aggregate supply curves (article) | Khan Academy
The short term supply curve. This demand curves looks like a demand curve for many things. The very first you get the person will get a high marginal benefit, and then as we add more and more incremental units, you'll have lower marginal benefit for those units.
- Aggregate demand and aggregate supply curves
Another way of thinking it, thinking about it a very high price the demand for Honda Civic's, Honda Civic's, will be low, or the quantity demanded would be low, and at a very low price the quantity demanded will be very high. I know another way at looking at the short term supply, at a low price, the quantity supplied will be low and at a high price the quantity supplied would be high.
Now let me give you some more information. Let's say this our town right over here. T for our town, and there are some neighboring towns. Some that's town A, this town B, this is town C, and this is town D. Let's say that all of them have a They all have an equilibrium price. I'm making this video inand that's about what the Blue Book value of a used Honda Civic is. You see that this is even the case in our town right over there.
The reason why I'm talking to you about other towns is because we can always trade, we can always move Honda Civic's very easily between towns. These might only be about 10 or 15 miles away. So not a difficult thing. Now were thinking about the long term. I just talked about the short term, now let's talk about the long term.
They'll just export them out. They'll export them out to neighboring towns where they can get more money for them. A lot of Civic's would be coming into town. So our long term supply curve would look something like this.
In a lot of books I drew this as a very slightly upward sloping. In many books they'll just be purist about it and they'll just do horizontal, perfectly, elastic curve.
Long term supply curve
This is a reminder. What is elasticity mean? With the very very small change in, or a perfectly elastic means a very small change in price, you have an infinite change in quantity. At the far left of the aggregate supply curve, the level of output in the economy is far below potential GDP—the quantity that an economy can produce by fully employing its existing levels of labor, physical capital, and technology, in the context of its existing market and legal institutions.
At these relatively low levels of output, levels of unemployment are high, and many factories are running only part-time or have closed their doors. In this situation, a relatively small increase in the prices of the outputs that businesses sell—with no rise in input prices—can encourage a considerable surge in the quantity of aggregate supply—real GDP—because so many workers and factories are ready to swing into production.
As the quantity produced increases, however, certain firms and industries will start running into limits—for example, nearly all of the expert workers in a certain industry could have jobs or factories in certain geographic areas or industries might be running at full speed.
In the intermediate area of the AS curve, a higher price level for outputs continues to encourage a greater quantity of output, but as the increasingly steep upward slope of the aggregate supply curve shows, the increase in quantity in response to a given rise in the price level will not be quite as large. At the far right, the aggregate supply curve becomes nearly vertical. At this quantity, higher prices for outputs cannot encourage additional output because even if firms want to expand output, the inputs of labor and machinery in the economy are fully employed.
In our example AS curve, the vertical line in the exhibit shows that potential GDP occurs at a total output of 9, When an economy is operating at its potential GDP, machines and factories are running at capacity, and the unemployment rate is relatively low at the natural rate of unemployment. The aggregate supply curve is typically drawn to cross the potential GDP line.
Short-run and Long-run Supply Curves (Explained With Diagram)
This shape may seem puzzling—How can an economy produce at an output level which is higher than its potential or full-employment GDP? The economic intuition here is that if prices for outputs were high enough, producers would make fanatical efforts to produce: Such hyper-intense production would go beyond using potential labor and physical capital resources fully to using them in a way that is not sustainable in the long term.
Thus, it is indeed possible for production to sprint above potential GDP, but only in the short run. So, in the short run, it is possible for producers to supply less or more GDP than potential if demand is too low or too high. In the long run, however, producers are limited to producing at potential GDP.
The Aggregate Demand Curve Aggregate demand, or AD, refers to the amount of total spending on domestic goods and services in an economy. Strictly speaking, AD is what economists call total planned expenditure. We'll talk about that more in other articles, but for now, just think of aggregate demand as total spending. Aggregate demand includes all four components of demand: Consumption Government spending Net exports—exports minus imports This demand is determined by a number of factors; one of them is the price level.
An aggregate demand curve shows the total spending on domestic goods and services at each price level. You can see an example aggregate demand curve below. Just like in an aggregate supply curve, the horizontal axis shows real GDP and the vertical axis shows price level. But there's a big difference in the shape of the AD curve—it slopes down.
This downward slope indicates that increases in the price level of outputs lead to a lower quantity of total spending.