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Aggregate Supply Curve

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The aggregate supply curve is a concept from economics that symbolizes all of the goods and services an economy produces in a given time period. Either a vertical line (i.e. long run aggregate supply curve or LRAS) or a line slopping upward from left to right (i.e. short run aggregate supply curve or SRAS) pictorially represents the aggregate supply curve. Every point on an aggregate supply curve corresponds to a particular level of output at a particular price. Output is plotted on the x-axis of the aggregate supply curve, price on the y-axis. An upward-slopping aggregate supply curve thus signifies that as prices rise, businesses are willing to produce more, while a vertical aggregate supply curve signifies that output will be the same regardless of price. Several factors contribute to determining the position of the aggregate supply curve, including labor supply, quantity and quality of capital stock, resource productivity, innovation, producers subsidies and taxes, and a shift in inflation expectations. A shift to the right in the aggregate supply curve signifies such events as a decrease in overall production costs (e.g. decrease in labor costs, technological innovation, subsidies, etc.). On the other hand, a shift to the left in the aggregate supply curve signifies an increase in production costs (e.g. higher wage costs, higher producer taxes, etc.). Prices may move the aggregate supply curve in the short run, but in the long run only resource availability and resource productivity affect the aggregate supply curve.



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