Long Run AS
Long Run AS
Courses Info
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
Long-Run Aggregate Supply
Classical View of Long-Run Aggregate Supply
- AS is inelastic – the classical view suggests that in the long-term, the economy will maintain fully employment; it sees wages and prices as flexible. Classical Economists also believe that long-term factors such as capital, technology, productivity will influence economic growth
- LRAS is a vertical straight line – because the classical view suggests AS is inelastic, LRAS remains a vertical straight line
Keynesian View of Long-Run Aggregate Supply
- LRAS is elastic – the Keynesian view suggests that the economy can be operating below Full Employment, even in the long run. This is depicted by an upward sloping and elastic LRAS curve
- Wages and prices can be sticky – because of the assumption that wages and prices can be sticky, it is difficult for economies to return to fully employment equilibrium
Factors causing a shift in the LRAS
- Land and raw materials
- Technology advancements
- More capital available
- Better quality / skillsets of employees
Normal Capacity – vertical long-run AS curve
[diagram]
The diagram above suggests that output is fixed at each level and all factors of production are being employed.
Any changes in aggregate demand will only effect the price level as the level of national output remains the same.
The LRAS curve is vertical to reflect the Normal Capacity level of output in the economy
Quick Fire Quiz – Knowledge Check
1. Using a diagram, explain the differences between the Classical View and Keynesian View of Aggregate Supply (8 marks)
2. Identify four factors causing a shift in the LRAS curve (4 marks)
Next Revision Topics
A Level Economics Past Papers
