AQA ECON2 7 Determinants Of Short Run A

2.7 Determinants of Short-Run Aggregate
Supply
What are the 4 factors of production?
How easy is it to increase the availability of each in the short-run? ECON2:
The National Economy

2.7 What you need to know

The concept of short-run aggregate supply
The determinants of the short-run aggregate

supply curve

2.7 You should be able to:

Define short-run aggregate supply
Explain and analyse the determinants of short-

run aggregate supply
Illustrate the effects of changes in short-run aggregate supply on a diagram

Aggregate Supply: A Definition
Questions
What is the shape of a normal supply curve?
Why is it upward sloping?
What does ‘aggregate’ mean?

“The total value of output of the

economy at a given price level at a given point in time.”

The Short-Run Aggregate Supply Curve
Building diagrams:
 Axis?
 AS Curve?

Price
Level

SRAS

P

Q

Real National
Output

What is meant “Short-Run”?
In economics, we differentiate between the short-run and

long-run
It is important not to think of this in terms of a specific time period, as the short and long run is more of a concept to be applied In the short-run it is assumed that all factors of production are fixed
The only exception to this is that firms may be able to hire more labour, or make existing labour and other existing resources work harder, in order to meet aggregate demand

Movements Along the SRAS Curve
A rise in the price level leads to an expansion in short-run aggregate supply .
Price
Level

Changes in aggregate demand lead to
SRAS movements along the
SRAS curve e.g. if AD increases, firms will hire more labour and make resources work harder in order to boost supply as they see an opportunity to increase profits.
A fall in the price level leads to a contraction in short-run aggregate supply. P1

P

P2

Q2

Q

Q1

Real National
Output

Factors Affecting SRAS (1)
Short-run aggregate supply can shift when

there is a change in the costs of production
These could be:
Wages
If wage