ECON102: Principles of Macroeconomics

Watch these videos for definitions of short- and long-run aggregate supply. Pay attention to what distinguishes the short run from the long run. What causes price and wage stickiness in the short run, and what are the implications for the shape of the supply curves?

For example, the short-run aggregate supply curve slopes upward due to the lag between product and resource prices, making it profitable for firms to increase output when the price level rises. The long-run aggregate supply curve is vertical when a country is at full employment. The long-run aggregate supply curve is vertical because, in the long run, resource prices adjust to changes at the price level, which leaves no incentive for firms to change their output. In the long run, prices and wages do not affect the aggregate supply curve.