Aggregate Supply

Aggregate Supply: is the level of real GDP that firms will produce at each price level.

Long- Run:
- Period of time where input prices are completely flexible and adjust to change.
- In long run, the level of real GDP, supplies is independent of the price level.

Short- Run:
- Period where input prices are sticky and do not adjust to changes in the price level.
- In short- run, the level of real GDP supplied is directly related to the price level.

Long Run Aggregate Supply:
- Mark the level of full employment
- Vertical at full employment
- Input prices are flexible

*Per unit production cost= total input cost/ total output cost

Determinants of SRAS:
- Input price
- Productivity
- Legal- Institutional environment.




Input Prices:
- Domestic Resource Prices
   - Wages (75% of all business cost)
   - Cost of capital
   - Raw materials
- Foreign Resources
- Market Power


*Productivity= total output/total input
*Legal Institutional Environment= Taxes/ subsities