Long Run Aggregate Supply Curve

1. Long Run Aggregate Supply Curve

2. Lesson Objectives • To learn about the meaning of Aggregate Supply • To understand the importance of Aggregate Supply in macro economics • To understand the reasons why the AS curve might shift

3. Factors • If the quantity and quality of economic resources change, then the long run aggregate supply curve will shift. • This is because the productive potential of the economy will be altered by any significant change to key economic resources

4. Why might the productive potential of an economy change? • Working with a partner, write down as many reasons as you can why the productive potential of the economy might change.

5. Key Economic Resources • Education and Training • This can raise workforce skills and productivity levels • So the Government’s decision to increase compulsory full time education from 16 to 18 may have a significant impact on the long run aggregate supply curve

6. Key Economic Resources (2) • Investing in capital equipment > raises stock of physical capital > pushes out the production possibility boundary

7. Key Economic Resources (3) • Technological advances

8. Key Economic Resources (4) • Increased world specialisation reducing production costs

9. Key Economic Resources (5) • Improved work practices, such as the introduction of flexible working hours or working from home • Just-in- time production, sometimes called lean production, turns traditional manufacturing on its head • Rather than producing goods and supplying customers from stock, JIT processes focus on producing exactly the amount customers require at exactly the time customers require it.

10. Key Economic Resources (6) • Government Policy changes, such as modifications to business regulations Vince Cable, the Business Secretary in the current Government

11. Group Activity • Working in groups of four, read through the five articles on economic issues. • For each article, decide if the action being described will have any effect on the AS curve – and if so, will it move to the left or to the right? • Your group needs to reach a decision on each of the articles – and then, you will need to explain (and justify) your decision.

12. Individual Activity • Choose any two of the articles we’ve studied. • For each of the articles that you’ve chosen, explain how Aggregate Supply might change. • Use a diagram to illustrate your answer (figure 3 on page 247 is a reminder of how your diagram should look before any change takes place). • Try to assess whether or not the changes taking place are likely to be short term or long term. • Try to evaluate what other factors may be important in determining the eventual outcome.

13. Homework • Read through and make notes on pages 245 to 247 • Collect two articles (from newspapers, magazines or the Internet) about current economic issues. Bring them into next week’s lesson and explain why you think they matter.