Short-Run vs. Long-Run Aggregate Supply Curves

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There are some significant differences in the short-run and long-run aggregate supply curves. The short-run curve can be said to only apply to the short-run, and is not applicable in the long-run (No author, 2012). The difference between the short-run and long-run aggregate supply curve is assumed to be that there is a period after the price of a good or service increases but the factor inputs have not adjusted yet to this increase. A basic example would be a service provider raising prices, but not yet raising the pay of the employee providing that service. In the short run, consumers are going to pay for more goods due to the higher prices, and this will suppress demand. The workers or providers of other factor inputs like suppliers will increase prices or wages in line with the increase in the retail price of the good. Thus, the employee who provides the service, in order to maintain his or her standard of living, will demand a wage increase when the price of goods in the economy increases. The long-run aggregate supply curve "describes the period when input prices have completely adjusted to changes in the price level of final goods." This curve occurs when the short-run aggregate supply curve reaches equilibrium. The short-run aggregate supply curve approaches the long-run aggregate supply curve. Represented graphically, this distinction is clear. The short-run aggregate supply curve is an upward sloping curve where an increase in the price level will result in an
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