Definition
- Short-run aggregate supply
- Short-run aggregate supply is the total output firms will produce at each price level while the prices of inputs such as labour and energy stay fixed.
- Not to be confused with: Long-run aggregate supply
- Long-run aggregate supply is potential GDP, the output an economy can produce by fully employing its labour, physical capital and technology.
Example
Can you think of one change that shifts only SRAS, and one that shifts LRAS?
The world price of oil falls by a third. Firms' costs fall, so they supply more at every price level: SRAS shifts right and LRAS does not move. A decade of better training raises what each worker can produce by a tenth. The economy's capacity has grown, so LRAS shifts right, and SRAS moves with it.
Test yourself
What is the difference between short-run aggregate supply and long-run aggregate supply?
SRAS moves with firms' costs and slopes up; LRAS moves only with capacity and is vertical.